How to close an LLP in India (Easy Exit / Strike off)
There can be many modes of closing an LLP. Strike off, Voluntary Liquidation or filing for bankruptcy are few options depending upon the facts. If the LLP is not doing any business or never did any business after incorporation, it is advisable to follow an easy process of strike off of the LLP. This option can be chosen if the LLP has no assets and no liabilities.
Here, we are discussing the simplest mode, i.e. Strike off. In a bid to simplify the process for striking off the Limited Liability Partnerships (LLP), the Central Government has amended the LLP Rules, 2009 whereby it will become easy for the defunct LLPs to apply for strike off its name from the Register of Names. It is a long awaited amendment which was actively sought by the LLPs which had either ceased its business activities or prior to filing of LLP Agreement (in Form 3), the Partners of the LLP developed a discord between themselves (LLP agreement is entered between Partners after incorporation).
Filings for the prior period mandatory even if no business:
Striking off an LLP was not an easy option prior to this amendment, as earlier LLP Rules (Rule 37) mandated filing of all the overdue forms prior to proceeding for strike off. An LLP, even if not operational, is required to file a minimum of two forms annually, i.e. Annual Return (in e-form 11 by 31st May every year) and Statement of Accounts (in e-form 8 by 30th September every year). In case of delayed filing, there is levied additional fees which increases with each day of delay. There is no upper cap to such additional fees and therefore, it became a significant financial burden for those LLPs which had outstanding filings for years together. The problem multiplied in cases of those LLPs which never commenced any business and all the compliances were ignored, probably, out of discord among the partners. It may be noted that the provisions for strike off of Defunct companies existed as simple procedure where it was possible to close down a company which met certain conditions without having to provide for previous year filings. For details on striking off of Companies, please visit the link Strike Off Under Companies Act, 2013. Industry circles expected similar provisions in case of LLPs as well for past many years.
LLP Rules amended w.e.f 20th May, 2017:
W.e.f 20th May 2017, Rule 37 of the LLP Rules, 2009 was amended to bring in much needed relief to the stakeholders who, prior to this amendment, had no means to close a defunct LLP without incurring huge additional fees.
The major highlights of the amendment are as follows:
- Filing of overdue Form 8 and 11: As per the notification, the LLPs now have to file overdue Statement of Accounts and Annual Return only till the end of financial year in which the LLPs have ceased to carry on its business or commercial operations and not thereafter.
- Certain attachments have been prescribed to be filed with the form 24 (eForm 24 is required to be filed for striking off the name of LLP) which also underlines the eligibility criteria for strike off, are as follows:
- Statement of Accounts disclosing nil assets and nil liabilities
- The statement is to certified by a CA in practise
- The statement should not be older than 30 days from the date of filing
- Copy of acknowledgement of latest ITR (Income Tax Return) filed, in case LLP has carried out any business
- Copy of initial LLP Agreement, if entered into and not filed, along with any changes made in it in cases where the LLP has not commenced business or commercial operations since its incorporation.
Detailed Notification can be found at Limited Liability Partnership (Amendment) Rules, 2017.
The amendment in the Rules brings a major reprieve to the LLPs who have not filed Form 3 i.e. the LLP Agreement, as the LLPs can straight away go ahead with the filing of Form 24 for Strike off. Prior to the amendment, the LLPs had to comply with requisite compliance of filing of Form 3, 8 and 11 before filing of Form 24. Also, late filing of such forms incurs huge expenses due to levy of heavy additional fees. Now, the LLPs can easily go ahead with the strike off of its name without having to consider the burden of additional fees for late filing (for years where no business was done).
Now that the Central Government has addressed the issue of easy strike off of LLPs, let’s wait and watch when the second concern regarding the upper cap on additional fees is also addressed.