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Introduction of LLP

Limited Liability Partnership, also called LLP is a combination of partnership a company. It is a type of partnership in which all or some partners are having limited liability. Each partner is legally responsible for his/her actions and to the extent of investment/capital made by them. Liability of any one partner will not be the liability of the co-partners. Partners do not have any joint-liability for any action taken by them like wrongful business decisions or misconduct. An LLP is a corporate unit and has a separate legal entity and it enjoys the continuous succession that is similar to the benefits a Company enjoys. It can sustain its existence irrespective of changes in partners. The minimum number of necessity to start a LLP is minimum 2 partners, out of which one must be an Indian resident, whereas there is no maximum limit for the same.

What is a LLP?

LLPs are managed by a different legislation that is called the Limited Liability Partnership Act, 2008 and the rules created by the Central Government for the operations of the LLP. Although the term partnership is available in an LLP Indian Partnership Act, 1932 yet, it does not include applicability on an LLP and the agreements entered between the partners to control the working of an LLP. "LLPs are one of the most favourite business entities for service sector and for small and medium businesses. The idea of LLP is there in the U.K., U.S.A., Japan, Canada, Singapore, France and others.

LLP can be a specific business, if mentioned in the LLP Agreement and it can be restricted by time according to their venture. Once the limitation period of the venture finishes, the unit may file with the Registrar of Companies (ROC) to strike off its name.

LLP includes a valuable corporate business unit. Like a company, it offers the benefits of 'limited liability' along with the flexibility involved in a partnership firm with maximum advantages and minimum compliances. If there are any contractual agreements between the partners, they are applicable for the smooth working of a LLP that are related to the partnership deed. In the case of no LLP Agreement, the terms of Schedule I of LLP Act, 2008 will be applicable.

Reasons for Striking off LLP

As par Section 75 of the LLP Act, 2008 and Rule 37(1) of LLP Rules, 2009, a Registrar of Companies (ROC) has the authority to strike off the name of a defunct or nonoperational LLP. If the Registrar considers that there is a logical reason to strike off the name and the entity was not operating for 2 years or more and has not arranged itself to the provisions and compliances stated under the aforementioned Act and Rules with the up-to-date amendments linked to the operations of an LLP.

The name of an LLP can be removed from the Register of the Registrar of Companies. The Registrar should send a notice to the LLP to strike off the name. LLP has a time of 30 days since the date of the notice of the Registrar of Companies to provide such LLP with an opportunity of being heard. Besides, it is also supposed to offer suitable evidence to support their stand for not striking off the name. During the period of the notice sent by the Registrar of Companies till the end of the time period of 30 days, the status of that LLP is "under process of strike off."

Annual Compliances

The annual compliances require to be pursued by the LLPs for the easy working of the unit. An LLP need sustaining certain books of accounts for every year of business with specific form filings which must be made.

Annual Filing of Statement of Account and Solvency

Statement of Account of an LLP requires to be filed annually, certificate by a nominated partner or the authorised representative mentioning that the statement of account and solvency and statement of assets and liabilities mentioning that the information offered is checked and is true in his/her knowledge.

Form 8 under LLP Act must be filed and is known as annual filing stating the statement of account. The form requires to be filed within 7 months before the completion of the financial year with the recommended format and within the specific time-period regarding the LLPs. The liability of the partner who intentionally creates a false statement or manipulates the books of account will be punished with up to 2 years of imprisonment and a fine of Rs. 1 lakh to 5 lakhs.

Annual Return

Form 11 under the LLP Act has an annual return should be filed by an LLP within 60 days from the end of the financial year. The return requires to be filed online through the website each year with the Ministry of Corporate Affairs (MCA) for continuing the compliance and prevent the punishment.

Annual Filing and Annual Return are known as the documents that are made available at the Registrar of Companies for public inspection. LLPs account statement and profit figures must be there in the public domain. Thus, with the LLP being not working for 2 years or more, the Registrar of companies can strike off its name as the main characteristic of LLP is damaged if its account statements are not ready to open.

Non-functioning

If the Registrar has reasonable cause to believe that the LLPs are defunct or inoperative for 2 years or more, suo-moto action for striking off the name of the LLPs can be taken by the Registrar. It is an optional power given to the Registrar of Company by the Central Government. The sound reason could be the non-compliances, inefficiency and others.

Voluntary Striking off

A provision for the voluntary striking off the name of the LLP by the LLP itself by making an application to the Registrar is included in the fresh amendment of Limited Liability Partnership (Amendment) Rules, 2017. Under Rule 37(1) (b) and 37(1A) of LLP Rules, 2017, Form 24 must be filed to the Registrar of Companies. Under the voluntary striking off, the LLP requires revealing nil assets and nil liabilities in the statement of account along with a copy of the limited liability partnership agreement when entered into, copy of acknowledgment of the latest Income tax return and an affidavit signed by the nominated partners, jointly or individually.

Non-compliance to LLP Provisions

The compliances for sustaining the working of an LLP need to be fulfilled. An LLP must stay up-to-date with the amendments, legal provisions, government circulars and others linked to the LLP.

The reasons to strike off a LLP include :

Lack of knowledge of the partner(s) about the filing of forms 8 and 11

And

A variety of other compliances

Unawareness of the partner(s) involves considering the LLP like partnership firms, only filing their Income Tax Return. Whereas in the case of LLP, excluding the Income Tax Return filing, they must file forms 8 and 11 which reveal the Annual return of the LLP and statement of Accounts and Solvency. It is the liability of the LLPs to follow the specific act and rules sustaining its operations, the non-compliance with the provisions will amount to a punishment in the type of striking off of the name of the LLPs.

What to perform if an LLP is Strike-off?

When a notice is sent to the LLP for strike off, its status enrolled alters to "Under Process of Strike Off". For enabling the status of the LLP active once more, the LLP must take appropriate action to the Registrar of Companies within 30 days since the date of the notice. The LLP should offer proof and facts to the Registrar of Companies mentioning the grounds for not striking off its name. The Registrar offers a chance to the LLP to give their reasons with proof to take their stand or validate their reasons.

The partners or the LLP itself can produce reasons why they could not fulfil the applicable provisions for a given period. They also require submitting copies of the applicable documents mentioning the reason for not striking off the name. If the LLP was in operation then proper books of accounts must be offered for support. If it was not operating then the reason of such should be given. It is recommended to contact the professionals depending on the type of business to start suitable actions.

Any stakeholder or person can object the proposed strike off by the Registrar of Companies by sending a notice within 1 month since the date of the notice. The objection can be raised by the partners or the LLP and the creditors or stakeholders who consider that the LLP was functional or have some interest in the LLP. The controversy by the creditors must be sustained by legitimate documents and it could be any individual related to the LLP who feels that loss would be acquired to them. They can raise an objection on the notice of the Registrar of Companies.

Needs

LLP should not have initiated business after incorporation

OR

LLP is not doing any business for past 1 year

And

LLP has nil assets and nil liabilities

Process for Closure of Defunct LLP

Closing Business Operations

The LLP must close its total business operations

Closing Bank Accounts

Preparing Closing Statement of Accounts

LLP must make a Statement of Accounts of LLP at the date of application

Application to Registrar of Companies - LLP Form -24

Partners of LLP should file application to Registrar with a security and affidavit

Compulsory Documents

PAN of LLP

LLP Documents

LLP Agreement by Partners

Bank Account Closure Statement / Certificate

Most up-to-date Income Tax Return (if any)

Fresh Statement of Accounts of LLP

Documents from Partners and Designated Partners

Aadhaar of Partners

PAN of Partners

Most recent Address Proof of Partners

Frequently Asked Questions

Ques: What is meant by a defunct LLP?

A defunct LLP includes an LLP that has not started any business or is not sustaining any business for the immediate past 1 year and has nil assets and nil liabilities.

Ques: How to close a defunct LLP?

A defunct LLP can be closed by filing an application to the Registrar with the approval of all partners of the LLP for striking off its name from the register.

Ques: What are the conditions to file an application for striking off a defunct LLP?

An LLP satisfying the following conditions can make an application for striking off its name from the Register of LLP :

It remains inoperative from the date of incorporation OR inactive for a period of at least one year.

It should have a PAN.

It should not have any bank account as on date of application.

It does not have any assets / liabilities as on date of application.

It should have filed the latest IT return.

Ques: How to make application for striking off the name by a defunct LLP?

Application for striking off the name by a defunct LLP must be submitted to the associate Registrar along with :

Prescribed fee

Affidavits and indemnity by all designated partners

Approval of all partners

Statement of Accounts not older than 30 days since the date of application certified by a Chartered Accountant

Copy of the latest IT return

Ques: A LLP has done a little business in the last year. Can it be closed?

The LLP can be closed if the LLP is inoperative from the date of incorporation or inactive for a period of at least 1 year instantaneously preceding the filing of application.

Ques: Who must sign on the application for closure of defunct LLP?

The nominated partners must sign the application for closure of defunct LLP with the approval of all the partners. Also the nominated partners need executing affidavits and indemnity as mentioned under LLP Rules.

Ques: Should all the partners' consent require for closure of the LLP?

Yes. Consent of all the partners is essential for filing the application for closure of defunct LLP.

Ques: Some assets and balance in bank account. Can it be closed?

If assets and balance exist in bank account, the LLP cannot be closed as defunct.

Ques: Will a certificate issued by the Registrar after closure of LLP?

No. a certificate will not be issued by registrar for closure of LLP. After checking the application, the Registrar will approve the application form. The status of LLP will be altered to 'under the process of striking off'.

Ques: What is the procedure after filing the application? How long it will actually take to strike off name of the LLP?

The complete process may take 3 to 6 months to be finished depending on the office of the Registrar. Once the application gets an approval, the details will be added on the website of the Ministry of Corporate Affairs. It is due to the information of the general public for a period of 1 month. After the end of 1 month from placing the details in the website of MCA, an order will be issued by the Registrar to strike off the LLP name from the register. He will publish notice in the Official Gazette. As soon as the notice is published in the Official Gazette, the LLP shall become dissolved.



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