In this article, we’ll explore everything you need to know about closing an LLP in India – from reasons and procedures to compliance requirements.
Why Close an LLP?
An LLP may need to be closed for several reasons:
- Non-Functioning Business – If the LLP is inactive for a significant period and does not intend to carry on business.
- Mutual Decision – When partners mutually agree to dissolve the LLP.
- Financial Losses – Inability to manage debts, compliance costs, or operational expenses.
- Regulatory Compliance – If the LLP has failed to file returns or maintain statutory records, closure may be a better option than attracting penalties.
- Voluntary Exit – The partners may wish to discontinue operations for personal or professional reasons.
Modes of Closing an LLP
There are mainly two ways to close an LLP in India:
1. Voluntary Closure of LLP
If the LLP has not commenced business or has been inactive for at least one year, the partners can apply for voluntary closure under the Fast Track Exit (FTE) scheme. This process is simple and suitable for LLPs with no outstanding liabilities.
Key Steps:
- Consent of all partners.
- Filing of application to the Registrar.
- Submission of necessary affidavits, indemnity bonds, and NOCs.
2. Compulsory Winding Up of LLP
An LLP can be wound up by the order of the National Company Law Tribunal (NCLT) under circumstances such as:
- The LLP has acted against the interests of sovereignty and integrity of India.
- The LLP is unable to pay its debts.
- The LLP has defaulted in filing annual returns or financial statements for five consecutive years.
- The Tribunal believes that it is just and equitable to wind up the LLP.
Procedure for Voluntary Closure of LLP
Here’s a step-by-step guide for voluntary closure:
- Consent of Partners – Obtain written consent from all designated partners to initiate closure.
- Cease Operations – The LLP should stop carrying on business activities except those necessary for closure.
- Clear Liabilities – Ensure all creditors are paid and there are no outstanding debts.
- Affidavits and Indemnity Bonds – Partners must declare that the LLP has no liabilities and indemnify against future claims.
- File Application with ROC – Submit Form 24 with the Registrar of Companies along with necessary documents.
- Approval by Registrar – Once the Registrar is satisfied, the LLP will be struck off from the records.
Documents Required for Closure of LLP
- Consent of partners
- Application in Form 24
- Statement of accounts (certified by a Chartered Accountant)
- Affidavit signed by designated partners
- Indemnity bond
- NOC from creditors, if any
- Proof of filing of latest Income Tax return
Consequences of Not Closing an LLP Properly
If an LLP is not officially closed, it will continue to attract compliance requirements such as filing annual returns and statements of accounts. Non-compliance can lead to:
- Heavy penalties and late filing fees
- Disqualification of designated partners
- Legal action from creditors or regulatory authorities
Therefore, it is always advisable to complete the closure process legally and formally.
Benefits of Closing an LLP
- Relief from compliance burden
- Protection from future liabilities
- Avoidance of penalties and legal issues
- Peace of mind for partners to focus on new ventures
Final Thoughts
The closure of LLP may seem complex, but with proper planning and professional guidance, the process can be straightforward. It ensures that the business is legally wound up, protecting partners from future risks. Whether it’s voluntary or compulsory, timely closure of an LLP is a smart move for entrepreneurs who wish to move on without unnecessary legal or financial complications.
If you’re planning to close your LLP, make sure you comply with the required procedures and maintain transparency with all stakeholders.