Due to its features, LLPs (Limited Liability Partnerships) are one of the most popular legal entities in India. Simply put, it is a combination of a partnership and a limited company. Since a few years ago, it has become one of the most popular legal entities over partnerships. However, sometimes Indian entrepreneurs need to close their LLPs for a variety of reasons. Today we discuss “How to Close an LLP in India: Procedure for Winding Up LLPs”.
- The reasons for winding up an LLP (Limited Liability Partnership) in India –
- After testing their ideas, the LLP has no profitability, so they want to close it.
- For a long time, there has been no business activity.
- A partnership or business is no longer viable due to a lack of commitment from the partners.
- If the LLP has completed any specified project.
- The LLP has gone bankrupt.
- After the death of a partner, only one partner remains and wants to close the business.
- As a result of a court order.
These are the main reasons for closing an LLP in India. When an entrepreneur experiences these issues after the registration, they are advised to close the winding-up LLP so they cannot be subject to legal penalties or compliance every year. In addition, they have to pay the huge maintenance fees through chartered accountants or company secretaries, so an LLP is always the best choice if you have any type of issue.
How to Close an LLP in India in 7 Steps
Step 1 – Pass the resolution –
When you decide to close an LLP in India, you must pass a resolution by at least 3/4ths of the partners.
Step 2 – Filing Form 1
Within 30 days after passing a resolution, you must file form 1 with a copy of the resolution.
Step 3 – Making a Debt Declaration
Thirdly, LLP’s have to declare that they have no debt liabilities or that if they do, they will have sufficient funds to pay them within 1 year after the winding up commences. The majority of partners (at least 2) have prepared it.
Step 4 – Form 4 & Asset Value
In the fourth step, the above forms have been submitted to the registrar along with an affidavit within 15 days of the resolution, along with a statement stating that the winding up is not done to defraud anyone, form no. 4 and a value report of the LLP’s assets. These forms were also included in the LLP’s Annual Compliance.
Step 5 – Obtain creditors’ consent
In order to sell your LLP, it is required that at least 23% of your unpaid creditors consent.
Step 6 – Appointing and filing a liquidator
Make sure the creditors’ consent is filed on time. Within 14 days of receiving creditor’s consent, you must also advertise in the local newspaper.
When the LLP’s liability and assets increase, a liquidator must be appointed, and a liquidator’s statement in form 6 must be filed.
Step 7:- Finalizing the accounts of the LLP
The sixth step involves finalizing the accounts and submitting them along with form 9. Form 9 completes all formalities, so it is time to file.
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How does an LLP file its paperwork?
