Compliance-Winding Up Of LLP

Overview

LLPs, introduced by the LLP Act, 2008 in India, offer audit exemption if annual turnover is under Rs. 40 lakh or capital contribution is under Rs. 25 lakhs. They share limited liability.

Registering an LLP involves legal processes. While it offers advantages, there are disadvantages too. It is possible to wind up an LLP in India under Sections 63, 64, and 65 of the LLP Act, 2008. Winding up can be initiated voluntarily or by a tribunal.

What is the winding up of LLP?

Winding up a business involves selling assets, paying off creditors, and distributing any surplus profits or assets among LLP partners as per the LLP Agreement.

To start the LLP winding-up process, a winding-up resolution must be passed and filed with the Registrar within 30 days. The voluntary winding-up begins on the resolution's passing date.

Benefit

Business owners who opt for the LLP model can later streamline the process by officially closing the LLP. This step clears away previous documentation and transactions between the business and its shareholders, reducing any confusion between old and new corporations.

This closure process eliminates the compliance burdens and allows entrepreneurs to focus on their new ventures without the threat of penalties or fines for non-compliance.

Managing an LLP's statutory compliance can be both challenging and costly. If the LLP isn't generating substantial profits, it's advisable to consider the LLP closure process.

Once the LLP is closed, the distinction between general and limited partnership dissolves, with one entity taking care of the essentials in the new company. Compliance tracking is no longer necessary, as the company is dissolved, removing the risk of penalties for non-compliance.

Closing an LLP puts a stop to legal actions associated with the company. Ultimately, this process allows business owners to invest their resources in new projects, saving on expenses and focusing on profit generation.

Tax & Process

LLPs in India experience unique tax rules, unlike traditional partnerships and companies. The income of an LLP is taxed at a fixed rate of 30%, plus any applicable surcharges and cess, on the total income. Importantly, the partners of an LLP do not face taxation on the income generated by the LLP itself. Instead, taxation is applied to the partners when profits or remuneration are distributed.

One more notable advantage of LLPs is their exemption from dividend distribution tax. This tax is imposed on companies when they disburse dividends to their shareholders, but LLPs are spared from this obligation.

Documents Required

• Digital Signature Certificate (DSC) of the authorized Partner.
• No Objection Certificate (NOC) if the LLP is associated with any regulatory body.
• PAN Card of the LLP and the Partners.
• Aadhaar Card of the LLP Partners.
• Copy of the LLP Agreement.
• Acknowledgment from the Partners confirming the LLP's closure.
• Address Proof for all Partners.
• Indemnity Bond signed by the Partner(s).
• Copy of authority, duly signed by all Partners, to submit the application.
• Copy of the latest Income-tax Return Acknowledgment.
• Affidavit signed by the designated Partners (sub-clause (b) of clause (II) of sub-rule (1A) to rule 37).

Procedure

Initiating the winding-up process of an LLP requires passing a resolution for the same and filing it with the registrar within 30 days. The voluntary winding up commences from the resolution's passing date.

Subsequently, a majority of the Partners must declare, verified by an affidavit, that the LLP has no debts or will clear them within a specified period (not exceeding one year from the winding-up's commencement). Alongside this affidavit, the following documents must be filed with the registrar within 15 days of the resolution for winding up:

A statement of assets and liabilities, attested by at least two partners, covering the period from the last two account closures to the date of winding up.

A report on the valuation of the LLP's assets prepared by a valuer, if applicable.

Winding up with Creditors

A Form 2 declaration from the majority of the partners, confirming no outstanding debts or a commitment to clear them within the specified period, is necessary.

Publication of the Resolution

Following the resolution's passage and obtaining creditor consent within 14 days, the LLP must publish a notice of the winding-up resolution in a newspaper circulated in the territory where the registered office or LLP office is situated.

Appointment of the LLP Liquidator

Upon resolution approval, a voluntary liquidator is appointed as the LLP liquidator with fixed remuneration. This appointment requires the consent of 2/3rd of the creditors in value.

Creditors can also nominate an LLP liquidator, and in cases of instant appointment by creditors and partners, the LLP liquidator chosen by the creditors takes precedence. If the liquidator is not acting, the tribunal will appoint one.

Filing of Winding up by a Liquidator

Upon complete winding up of the LLP's affairs, the LLP liquidator prepares a report detailing the winding-up process and property disposition. If two-thirds of the partners and creditors in value are satisfied with the report, a resolution for winding up accounts and dissolution explanation must be passed by the partners. The LLP liquidator submits this report, along with the resolution, to the Registrar and files an application with the tribunal.

Dissolution

When the LLP's affairs are fully wound up and its liabilities discharged, the LLP liquidator prepares a report in Form 9. This report outlines how the company was wound up, contains final accounts, and explains the property disposition. Once approved by partners, creditors are sought for dissolution.

Finally, closing an LLP, it's a two-way process driven by a deliberate choice or necessitated by circumstances.

Striking Off

The introduction of Limited Liability Partnership Rules, in 2017 simplified the LLP winding-up process. An application to the Registrar for striking off the LLP's name is now possible, making it easier and more straightforward.

After winding up an LLP

During the winding-up process, the company cannot engage in regular business activities unless it's necessary for liquidation and asset distribution. The company dissolves, and the LLP ceases to exist upon the process's conclusion.

FAQ's