Dissolving an LLP – a chance by the MCA for defaulting companies.
The penalty for LLPs defaulting in submitting any statutory return is Rs. 100/day, without any maximum cap. Thus, it is often best to dissolve ineffective LLPs so that there is no desideratum to submit LLP form 11, LLP form 8 and ITR for the LLP each financial year to keep the compliance in check and avoid penalty. Thus, it is in entrepreneurs’ best interest with ineffective or defaulting LLPs to close the LLP. Here, it is important to carry out LLP registration in India by providing the required documents as per the LLP act, 2008.
Earlier, the LLPs were obliged to submit all their overdue returns, such as forms 11 and 8, with the concerned registrar with payment of additional fees of Rs. 100/day that used to be around lacs of rupees. But the MCA vide notification no. G.S.R. 470 (E), dated on 16th May 2017, offered relaxation to those LLPs that have neither carried of their business nor submitted any return with the concerned registrar and want to wind up their LLPs, are required to submit the overdue returns of the years in which the LLPs have actually worked such as before date of closure of their business and LLPs will not have to submit any returns for the period in which the business was actually not carried out. Nonetheless, a declaration has to be provided by the designated partners concerning the date of closure of their business.
Any LLP can windup its business through adopting any of the two ways given below;
- Declaring the LLP as defunct.
- LLP’s wind up.
Process of closing down of LLP through declaring it as defunct.
Where an LLP wants to close down its business or not conducted any business operations for a time span of 1 year or more, it can file an application to the registrar for declaring the LLP defunct and expelling LLP’s name from LLP’s registrar.
Eform 24 is needed to be submitted for striking off the name of LLP under clause (b) of sub-rule 1 of rule 37 of LLP rules, 2018. Likewise, the registrar also possesses the power to strike off any defunct LLP after satisfying herself/himself of the requirement to strike off with reasonable cause to do so. Nonetheless, the registrar will have to send a notice to LLP clarifying his/her intentions and request to send their demonstration within 1 month from the said notice date. The registrar should publish such notice or application’s content through LLP on its website for a time of 1 month for the general public’s information. In case no reply is received within the stipulated period, the registrar might strike off the LLP name.
The process that has to be followed for closing an LLP through submitting form 24;
- It can be submitted only by the LLPs that never started a business or have ceased their commercial activities. Thus, If the LLP is running and operating and promoters want to close the LLP, LLP should first cease its commercial activities.
- This form can be submitted only by those LLPs with no bank account, no creditors as on the date of LLP closure with the registrar. Thus, before submission of LLP form 24, any bank account created in the LLP’s name has to be closed, and a letter as proof of closure of the bank account in the LLP’s name has to be acquired from the bank.
- LLP’s all the designated partners should first execute an affidavit, either severally or jointly, that the LLP ceased to conduct its commercial activities from the date or has not started a business with a date. Also, the LLP partners should declare that the LLP has no indemnify any liability or liabilities that might come up even after striking off its name from the registrar. Partners’ liabilities will not be differentiated even after closure of the LLP while using LLP form 24.
- Along with form 24, the ITR of the LLP has to be fixed. And the latest submitted ITR’s acknowledgment copy has to be fixed with the application of closing of the LLP.
- After the LLP incorporation, it is crucial to know what is LLP agreement as the same must be submitted with the MCA within a month of registration. Where compliance was missed and the LLP agreement was not submitted, then the initial LLP agreement, if entered into and not submitted, along with any amendments, has to be submitted with late fees of Rs. 100/day.
- Once form 24’s documents are prepared, a statement of accounts revealing NIL assets and liabilities certified through a practicing CA up to a date not earlier than a month of the date of submission of form 24 has to be acquired.
- The aforementioned documents, along with LLP form 24, can be submitted with the MCA to strike off the LLP’s name. On the application process, if accepted, then the concerned RoC would send a notice to be published on the MCA website stating the LLP’s striking off.
It is effective for entrepreneurs to strike off their dormant and defaulting LLPs that are not working and to obtain relief from the hefty penalties of the ministry.