Winding Up - LLP
Winding up a Limited Liability Partnership (LLP) involves legally dissolving the entity by settling its debts, liquidating its assets, and distributing the remaining assets to the partners. This process can be initiated voluntarily by the partners or compulsorily by a tribunal for various reasons such as insolvency, inactivity, or breach of laws. Navigating the complexities of winding up requires a thorough understanding of legal procedures, compliance requirements, and financial management. LLP members need to approach this process methodically to ensure a smooth dissolution of LLP firm, safeguarding the interests of all parties involved.
What is the Winding up of LLP?
Winding up of a Limited Liability Partnership (LLP) refers to the formal process of closing down the LLP's operations, disposing of its assets, and settling its liabilities. This process is undertaken when an LLP ceases its business activities and dissolves as a legal entity.
Law Governing - LLP Winding up
The rules for winding up of LLP and dissolution of Limited Liability Partnerships (LLPs) in India are primarily governed by the following provisions and notifications:
Section 65 of the LLP Act, 2008: This section empowers the Central Government to formulate rules regarding LLPs' winding up and LLP dissolution Process.
Section 67 of the LLP Act, 2008: This section grants the Central Government the authority to apply, with or without modifications, any provisions of the Companies Act, 1956, to LLPs. This includes provisions related to winding up, enabling a more flexible and adaptable approach to regulate the LLP dissolution processes by borrowing relevant provisions from the Companies Act.
Notification vide GSR 6(E), dated 6th January 2010: Following the authority granted under Section 67, the Central Government issued this notification to specifically direct that certain sections of the Companies Act, 1956 apply to the winding up of LLPs.
Limited Liability Partnership (Winding up and Dissolution) Rules, 2012: Issued under notification No. [F.No. 1/7/2012-CL-V] dated 10th July 2012, these rules specifically address the procedures, forms, and fees associated with LLPs' winding up and dissolution.
The process of voluntary liquidation for a Limited Liability Partnership (LLP) involves several critical steps as outlined below:
Commencement of Liquidation
Declaration of Solvency (DOS): Obtain a declaration from most designated partners, verified by an affidavit, affirming the LLP's ability to pay off debts.
Accompanying Documents: The DOS should be accompanied by audited financial statements for the last two years or since incorporation and a valuation report of assets by a registered valuer.
Resolution: Pass a resolution for voluntary liquidation and appoint an insolvency professional as the liquidator within four weeks of obtaining the DOS.
Creditors' Approval: If the LLP has debts, creditors representing two-thirds of the debt value must approve the resolution within seven days.
Notification: Notify the Registrar and the Insolvency and Bankruptcy Board of India (IBBI) about the resolution within seven days.
Liquidation Proceedings: Liquidation is deemed to commence from the resolution date, subject to creditors' approval.
Effect of Liquidation
The LLP must cease business operations from the liquidation commencement date except for actions beneficial to the winding-up process.
The LLP continues to exist until it is dissolved.
Appointment and Remuneration of Liquidator
Appoint an insolvency professional as a liquidator who meets specific eligibility conditions.
The resolution for appointment should include terms and conditions and remuneration, which is part of the liquidation cost.