Winding Up of LLP
Winding up a Limited Liability Partnership (LLP) in India involves closing the business operations, settling debts, and distributing the remaining assets among the partners. The process is governed by the Limited Liability Partnership Act, 2008 and the Insolvency and Bankruptcy Code, 2016. Like companies, LLPs can either be wound up voluntarily by the partners or compulsorily by a tribunal.
Winding up an LLP is a formal legal process that involves careful compliance with statutory requirements. Voluntary winding up is more straightforward if the LLP is solvent, while compulsory winding up is a more complex process requiring tribunal intervention.
Types of Winding Up for LLPs:
Voluntary Winding Up:
Initiated by the partners when they decide to close down the LLP, provided it is solvent and able to pay its debts.
Compulsory Winding Up:
Initiated by a tribunal (NCLT) under specific circumstances, such as the LLP being unable to pay its debts or conducting activities against the interests of the country.
Procedure for Voluntary Winding Up of an LLP
- Consent from Partners
The voluntary winding-up process begins with the consent of all partners. A resolution for winding up must be passed by the partners.
Declaration of Solvency: The partners must declare that the LLP is solvent, meaning it can pay off its debts within a specified period (typically within one year from the start of the winding-up process). This declaration must be supported by an affidavit signed by the majority of partners, along with a statement of the LLP’s assets and liabilities.
- Resolution for Winding Up
A resolution for voluntary winding up must be passed by the partners.
The LLP must file the resolution with the Registrar of LLPs (ROC for LLPs) in Form 1 within 30 days of passing the resolution.
- Appointment of Liquidator
After passing the resolution, a liquidator must be appointed to carry out the winding-up process. The liquidator will be responsible for liquidating the LLP’s assets and settling its liabilities.
The appointment of the liquidator must be communicated to the Registrar of LLPs in Form 2.
- Public Notice
A public notice of the winding up must be published in a newspaper in the state where the LLP’s registered office is located. This allows creditors and other stakeholders to make any claims against the LLP.
- Settlement of Liabilities
The liquidator will assess the LLP’s liabilities and settle claims from creditors. The liquidator will also dispose of the LLP’s assets to meet its liabilities.
After paying off all debts, any remaining assets are distributed among the partners according to their rights in the LLP agreement.
- Final Accounts and Report
After settling liabilities and distributing remaining assets, the liquidator prepares a final account of the winding-up process.
A final meeting of the LLP is called to approve the liquidator’s final account and report.
- Filing of Final Accounts
The liquidator submits the final accounts and report to the Registrar in Form 4. The form should include:
A copy of the final accounts.
A report of the winding-up process.
- Dissolution of LLP
Once the Registrar is satisfied with the winding-up process, the LLP is officially dissolved, and its name is struck off from the register of LLPs. A notice of dissolution is published by the Registrar.
Compulsory Winding Up of LLP by Tribunal
An LLP can be compulsorily wound up by the National Company Law Tribunal (NCLT) under the following circumstances:
LLP Inability to Pay Debts: If the LLP is unable to pay its debts or is insolvent.
Acts Against Sovereignty and Integrity: If the LLP has acted against the sovereignty and integrity of India, security of the state, or public order.
Defaults in Filing: Failure to file financial statements and annual returns with the Registrar for five consecutive financial years.
Just and Equitable: If the tribunal believes that it is just and equitable to wind up the LLP.
Process of Compulsory Winding Up:
Petition for Winding Up:
A petition is filed before the tribunal by creditors, partners, or the Registrar of LLPs, depending on the reason for winding up.
Appointment of Liquidator:
The tribunal appoints an official liquidator to carry out the winding-up process. The liquidator will take charge of the LLP’s assets, settle debts, and distribute any remaining assets.
Settlement of Liabilities and Distribution of Assets:
The liquidator liquidates the LLP’s assets and settles its liabilities. The remaining assets are distributed among the partners.
Final Report and Dissolution:
After completing the liquidation, the liquidator submits a final report to the tribunal.
The tribunal passes an order to dissolve the LLP, and the Registrar removes the LLP from the register.
Key Documents Required:
Board resolution for voluntary winding up.
Declaration of solvency signed by the majority of partners.
Statement of assets and liabilities.
Appointment of liquidator.
Final accounts and report.
Forms: LLP Form 1, Form 2, Form 4, and other necessary filings.
Timeline:
The voluntary winding-up process typically takes 6 months to a year, depending on the complexity of the LLP’s finances.
Compulsory winding up can take longer due to legal proceedings and the tribunal’s involvement.
Consequences of Winding Up:
Cessation of Business: The LLP must cease all its business activities except those necessary for the winding-up process.
Discharge of Employees: Employees are generally terminated as part of the winding-up process.
Dissolution: After the final dissolution, the LLP ceases to exist as a legal entity.