How to Close an LLP: A Step-by-Step Guide

A Limited Liability Partnership (LLP) offers the flexibility of a partnership while providing the limited liability of a company. However, there may come a time when business operations cease or the partners decide to move on, and the LLP needs to be formally closed. Understanding the proper process to close an LLP is essential to ensure compliance and avoid future complications.

Why Close an LLP?

Closing an LLP might be necessary for several reasons:

• The LLP is no longer carrying on business.

• Partners have agreed to discontinue operations.

• Financial constraints or lack of profitability.

• Internal disputes or changes in partnership goals.

• Merger, acquisition, or business restructuring.

Methods to Close an LLP

There are primarily two ways to close an LLP:

1. Voluntary Strike-Off (Fast Track Exit Mode)

This is applicable when the LLP is inactive or not carrying on any business for at least one year. The partners can apply to strike off the name of the LLP from the registrar.

Steps Involved:

• Convene a meeting of partners and pass a resolution to close the LLP.

• Settle all dues and liabilities.

• Obtain a No Objection Certificate (NOC) from creditors.

• File Form 24 with the Registrar of Companies (ROC) along with:

  • Affidavit and indemnity bond from partners.

  • Statement of accounts certified by a Chartered Accountant.

  • A copy of the resolution for closure.

• Await approval from the ROC.

2. Winding Up through Tribunal

This is usually undertaken when:

• The LLP is unable to pay its debts.

• There are less than two partners for more than six months.

• The LLP has acted against the interests of the country or public order.

• A court or tribunal orders the closure.

This is a more complex legal process and requires the involvement of a court-appointed liquidator.

Key Considerations Before Closure

• Tax Clearance: Ensure that all taxes and filings are up to date.

• Bank Accounts: Close all LLP-related bank accounts.

• Contractual Obligations: Review and terminate all contracts, leases, and agreements.

• Employee Settlements: Fulfill any obligations towards employees, if applicable.

Final Thoughts

Closing an LLP is not just about ceasing operations; it’s about legally dissolving the business entity and ensuring there are no future liabilities. Whether you’re opting for a voluntary strike-off or a tribunal-based winding up, it’s always advisable to consult a legal or financial expert to guide you through the process.