Closure of Business carried on under the Limited Liability Partnership can be affected either by declaring the LLP as defunct or it's winding up.
“Winding up of the business is the procedure where the selling of business assets and paying off to creditors take place. In even of any surplus profit or assets, those are distributed to the partners of the LLP in accordance with the Limited Liability Partnership Agreement.”
An LLP winding up can be initiated voluntarily or by striking off or by a Tribunal. If an LLP is to initiate winding up voluntarily, then the LLP must pass a resolution to wind up the LLP with approval of at least three-fourths of the total number of Partners. If the LLP has lender's, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP.
Types of Winding up:
Above provided grounds fall either under Voluntary or Compulsory in nature. Based on grounds of the procedure of winding up differs, which is bifurcated in following heads:
VOLUNTARY WINDING UP:
After online LLP registration, where the partners of the LLP mutually decide to wind up the Limited Liability partnership falls under this head. The same can be further classified in following heads.
(a) Voluntary winding up by members:
The Limited Liability partnership, through its partners may decide to wind up the affairs of the LLP on any voluntary grounds on mutual agreement of the Partners or any other ground provided in the LLP Agreement of the concerned Limited Liability Partnership. The LLP shall appoint a liquidation or provisional liquidator to wind up the LLP and its affairs.
(b) Voluntary winding up by creditors:
Where the Limited Liability Partnership and its creditors are of the opinion that the LLP may not be able to fulfil and pay its liabilities to continue its business. Here, the LLP should convene the meeting of its creditors to allow them to consider the proposal for the company to be wound up.
COMPULSORY WINDING UP:
Where the Limited Liability Partnership shall be compulsorily wound up by the order of NCLT (National Company Law Tribunal).
Winding up procedure requires the higher involvement of practicing professionals like Company Secretaries. Further, contrasting to procedure of declaration of LLP as defunct, the appointment of Liquidator is mandatory under this route.
The Tribunal may appoint an official liquidator responsible for winding up of the affairs of LLP in respect to which the order of winding up and dissolutions is passed
REASONS OF WINDING UP:
The Limited Liability Partnership shall go through the process of winding up, after online LLP Registration and commencement of business under the said LLP, based on following grounds.
The Form-24 need to be filed with MCA, form if accepted, the concerned Registrar of Companies would cause a notice to be published on the MCA website announcing the striking off of the LLP.
When partners decide amongst themselves to stop and close the LLP. LLPs can be wound-up in the following steps:
LLPs can be wound-up voluntarily by passing a resolution with the approval of at least 3/4th of the total number of partners. If the LLP has lenders, secured or unsecured, then the approval of the lenders would also be required for winding up of the LLP by adopting the following procedure
1. Passing of Resolution:
To begin the process for winding up of LLP, Pass resolution for winding up by taking approval of three-fourth of total number of partners, a resolution passed must be filed with the Registrar within 30 days in Form No. 1 of passing of the resolution.
2. Declaration of solvency
A Declaration need to be filed by majority of designated partners in Form No. 2 verified by affidavit declaring that LLP is able to pay its debt or will be able to pay the debt within one year of commencement of winding up. Declaration need to-
The declaration needs to be filed with registrar in Form No. 3 within 15 days of passing of resolution.
3. Meeting of Creditors
Creditors shall give their consent or opinion within 30 days of receipt of the declaration where Creditors two-third in value. The Declaration need to be filed with the registrar in Form No. 5 within 15 days of receipt of consent of creditors.
4. Publication of Notice
After receiving consent of Creditors, within 14 days a notice of voluntary winding up needs to be publish in a Newspaper circulating in the district where registered/ principle office of LLP is situated.
5. Appointment of Liquidator
The LLP Liquidator is appointed within thirty days of passing of resolution of voluntary winding up through a resolution. In case there are any creditors, then the appointment of LLP Liquidator shall be valid only if it is approved by two thirds of the creditors in value of the LLP.
It is then the duty of the LLP Liquidator to perform the functions and duties for winding up of LLP. The LLP Liquidator would settle the creditors and adjust the rights of the partners, as the case may be. While discharging his duties,
the LLP Liquidator is required to maintain proper books of accounts pertaining to the winding up of the LLP.
The liquidator shall report the progress of winding up to the partners or creditors Quarterly in Form No. 8.
6. Report by LLP Liquidator
On disposal of all assets and affairs of LLP the liquidator shall give the report in Form No.9 showing assets and debts which has been disposed off to the partners and creditors.
7. Dissolution of LLP
The liquidator shall send the final copy of accounts and report in Form No. 10 to the registrar and to the tribunal within 15 days of passing of resolution.
The tribunal if satisfied shall pass the order of winding up within 60 days and it will be binding on all the parties.
The liquidator shall file order of tribunal in Form No. 11 to the registrar within 30 days of receipt of order from tribunal.
The registrar, on receipt of the order of tribunal shall publish in official gazette that the LLP stands dissolved.
The cost, expenses and remuneration of liquidator for winding up is paid out of assets of LLP and will have priority over all other claims.
In a nutshell it can be said that if partners want to wind up their LLP voluntarily, they may opt any of the above way as applicable. The legislature by laying down a specific procedure of winding up has provided an ease to the LLPs which has not commenced their business or become defunct.
