Understanding the Trademark Assignment

Closure of LLP - Overview

The Limited Liability Partnership (LLP) closure process is a significant decision that can arise from various circumstances. Whether driven by voluntary factors, such as a mutual decision by the partners to discontinue operations, or involuntary factors, like non-compliance with statutory requirements, understanding the reasons and methods of closure is crucial.

The decision to close an LLP often stems from the following reasons:

1. Voluntary Closure:
   Partners may mutually agree to cease operations due to business inactivity, an unprofitable venture, or a strategic shift in focus. This proactive decision is usually taken when all stakeholders conclude that continuing operations no longer align with their goals.
2. Involuntary Closure:
   Sometimes, an LLP faces closure due to external circumstances such as non-compliance with legal or regulatory obligations, accumulation of penalties, or other statutory violations. In such cases, authorities may initiate the process of striking off the LLP from the official records.

Method or Procedure of Closing an LLP

Closing a Limited Liability Partnership (LLP) in India can be carried out through two primary methods: Voluntary Winding Up and Striking Off. Each method has its unique set of requirements, advantages, and limitations. Choosing the right approach depends on the LLP’s operational and financial status. Let’s look into the details of these two LLP closing procedures:

1. Voluntary Winding Up

Voluntary winding up is a process initiated by the partners when they collectively decide to dissolve the LLP. This method is typically chosen when the partners agree to cease operations due to inactivity, unprofitability, or a strategic decision to exit.

Advantages of Voluntary Winding Up:

• Controlled and Planned Process
• Avoids Penalties for Non-Compliance

Disadvantages of Voluntary Winding Up:

• Time-Consuming
• Settlement of Liabilities Required

2. Striking Off

Striking off is a simpler and faster method for closing an LLP. It is suitable for LLPs that have been inactive for a significant period and have no outstanding liabilities. This process involves applying to the RoC to remove the LLP’s name from the register.

Advantages of Striking Off:

• Simplified and Less Expensive
• Suitable for Dormant LLPs

Disadvantages of Striking Off:

• Not Applicable for LLPs with Liabilities
• Limited Scope for Active LLPs

Step-by-Step Procedure to Close an LLP

A brief overview of the process for closure of LLP in India:

1. Passing a Resolution for Winding Up

The first step is for the partners to pass a resolution for voluntary winding up. A majority of partners must agree, and the resolution must be filed with the ROC within 30 days.

2. Appointing a Liquidator

The partners must appoint a liquidator to oversee the winding-up process. The liquidator’s role includes realising the LLP’s assets and settling its liabilities.

3. Realising Assets and Paying Off Liabilities

The liquidator identifies and sells the LLP’s assets to clear all outstanding liabilities. Surplus funds, if any, are distributed among the partners.

4. Filing the Necessary Forms with the ROC

The LLP must file forms such as Form 24 and other requisite filings with the ROC to notify the authorities about the closure.

5. Obtaining the Final Order of Dissolution

After reviewing all filings and confirming the settlement of liabilities, the ROC issues a final order of dissolution, formally closing the LLP.

Filing LLP Form 24: Step-by-Step Process

Closing a Limited Liability Partnership (LLP) in India requires filing LLP Form 24 with the Ministry of Corporate Affairs (MCA). Below is a simplified step-by-step process to help you navigate this procedure:

1. Cease Business Operations

Before applying for closure, ensure that the LLP has either never commenced business or has stopped all commercial activities. If your LLP is still active, suspend all operations before proceeding.

2. Settle Liabilities and Close Bank Accounts

LLP Form 24 can only be filed if the LLP has no outstanding creditors and all bank accounts are closed. Obtain a closure letter from the bank as proof.

3. Draft Partner Affidavits

All designated partners must prepare an affidavit declaring:

• The LLP has ceased operations from a specific date or never started.
• The LLP has no liabilities, and partners agree to indemnify any future claims.

4. Prepare Supporting Documents

Attach the following documents to LLP Form 24:

• Copy of the latest Income Tax Return (if filed). If no returns were filed, this is not required for non-operational LLPs.
• A statement of accounts showing nil assets and liabilities, certified by a Chartered Accountant, dated no more than 30 days before filing.

5. Resolve Pending Filings

Ensure that:

• The LLP Agreement is filed, if not already done.
• Any overdue Form 8 and Form 11 are submitted up to the date of cessation of business.

6. File LLP Form 24 with MCA

Submit the completed LLP Form 24 with all attachments to the MCA. Once reviewed, a notice of striking off will be published on the MCA website if no objections are raised.

Documents Required to Close the LLP

Here is a list of LLP closure documents required during the process:

• Board Resolution for Winding Up: Document signed by all partners approving the winding-up process.
• Liquidator’s Consent: Written consent from the appointed liquidator.
• No-Objection Certificate from Creditors: If applicable, creditors must provide a no-objection certificate.
• Final Accounts and Balance Sheet: Statement of accounts showing all liabilities cleared.
• Tax Clearance Certificates: Certificate from the tax authorities confirming no pending dues.

 Conditions for LLP Closure

Certain conditions must be met before initiating the LLP closure process:

• Settlement of Debts and Liabilities: All outstanding debts and liabilities must be cleared.
• Statutory Filings: All statutory filings and compliance requirements must be up-to-date.
• Approvals: Necessary approvals from all partners and creditors (if applicable) must be obtained.

Advantages and Disadvantages of LLP

Like any business entity, an LLP has its own advantages and disadvantages that should be carefully considered before choosing this structure.

Advantages of an LLP

1. Limited Liability: The liability of partners is limited to their agreed contribution to the business, protecting personal assets in case of business debts or losses.
2. Separate Legal Entity: An LLP is a separate legal entity from its partners, meaning it can own assets, enter into contracts, and sue or be sued independently.
3. Flexibility in Management: There is no strict separation between ownership and management, allowing partners to manage the business as per their agreement.
4. No Minimum Capital Requirement: Unlike private limited companies, LLPs do not have a minimum capital requirement, making them more accessible to small businesses and startups.
5. Ease of Compliance: LLPs have fewer compliance requirements compared to companies, such as no mandatory board meetings or annual general meetings.
6. Unlimited Number of Partners: An LLP can have any number of partners, offering greater flexibility in expanding ownership.
7. Low Registration Cost: Setting up an LLP is more affordable than incorporating a private limited company.

Disadvantages of an LLP

1. Limited Recognition: LLPs are not as widely recognised as private limited companies, which may affect investor confidence or business collaborations.
2. Restrictions on Fundraising: LLPs cannot raise funds through equity, making them less suitable for businesses looking to attract venture capital or private equity investment.
3. Limited Scope for Public Trust: LLPs are not listed on stock exchanges, so they may lack the transparency that comes with publicly traded companies, leading to lower public trust.
4. Difficulty in Expansion: LLPs are not ideal for businesses aiming for rapid scalability, as the inability to issue shares limits their access to growth capital.

An LLP is an excellent choice for small businesses, professionals, and startups looking for a flexible, cost-effective business structure with limited liability. However, it may not be suitable for companies that require significant funding or aspire to scale rapidly. 

Frequently Asked Questions

Format of a Partnership Deed

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The format of a partnership deed may vary based on the specific requirements of the partners and the nature of the business. However, a typical partnership deed includes the following essential elements:

• Name of the Partnership:
  The official business name under which the partnership operates is stated, along with the physical address where the primary business activities occur. This section also highlights the duration of the partnership firm alongside the date of the commencement.
• Details of the Partners:
  This section includes the full name, address, and relevant particulars of the Individuals participating in the Partnership.
• Purpose:
  Here, the nature and scope of the business activities conducted by the partnership is clearly stated. The firm shall have the power to fulfill the objectives of thecompany and conduct any such lawful business activities.
• Capital Contribution:
  The total capital of the firm and the individual share contributed by each partner are to be mentioned here. The contribution can be in cash, goods, or property on agreed values.
• Profit and Loss Sharing:
  ‍It clearly articulates the agreed-upon ratio or percentage in which profits and losses will be distributed among the partners.
• Financial Decisions:
  It includes information such as the partners' salary and commission, permissive drawings from the firm for each partner, the interest payable to the firm on these drawings, partnership loans, and other relevant details.
• Admission and Retirement of Partners:
  ‍This part outlines the criteria and process for admitting new partners into the business. Similarly, it details the procedures for the retirement or withdrawal of existing partners.
• Dispute Resolution:
  Procedures for resolving disputes among partners are established. This may include mechanisms for mediation or arbitration to address conflicts and maintain a harmonious partnership.
• Dissolution:
  It states the conditions and procedures for the dissolution of the partnership which highlights the distribution of assets, settlement of liabilities, and the overall process of winding up the business.
• Witnesses and Signatures:
  The partnership deed is formally executed with the signatures of all partners, and done in the presence of witnesses.

How to draft a Partnership Deed?

A partnership deed can be a verbal or written agreement outlining the rights, responsibilities, profit-sharing, and other obligations of the partners.

While it can be recorded verbally, it is highly advisable to formalize a written partnership deed with the Registrar of Firms as it aids in resolving potential disputes. It also proves beneficial for tax purposes and ensures the formal registration of the partnership firm.

• The Partnership Deed, formulated by the partners, must be executed on stamp paper with a minimum value of Rs. 200, as per the Indian Stamp Act.
• Each partner should retain a copy of the partnership deed for future reference.
• Once stamped, the Partnership deed is attached with the application to the Registrar of Firms for formal registration and legal validation.

As per the Partnership Act, Registration of Partnership Firms is optional, but if you still choose to register your firm-

The application should be accompanied by essential documents, including a duly filled affidavit, a certified true copy of the Partnership Deed, and proof of ownership or a rental/lease agreement for the main business location.

Validity of the Partnership Deed

The validity of the firm is mentioned in the deed, whether it's for a limited period, for a specific project or for an unlimited period.

Note: A partnership deed that has been notarized alone does not hold legal validity in the event of legal disputes. However, if the partnership firm is formally registered with RoF, the partnership deed will be recognized as having legal standing.

Fees for the Partnership Deed in India

The Partnership Deed must be executed on a stamp paper with a minimum value of Rs. 200, as per the Indian Stamp Act.

However, Partnership registration fees vary among states due to different compliance requirements and stamp duty rates. The cost for registering a Partnership Firm ranges from Rs. 500 to Rs. 3000.

Note: Stamp duty is calculated based on partner contributions and follows state-specific regulations.

Alterations in the Partnership Deed

Partners have the flexibility to modify, alter, or change the partnership deed through mutual agreement. All partners are required to sign the amended deed.

Subsequently, the modified partnership deed should be registered at the Sub-Registrar's office, where the original deed was registered. Additionally, it is necessary to submit the modified deed to the Registrar of Firms for record-keeping purposes.

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Eligibility

• Must have business plans for service sector activities or trading or manufacturing activities.
• In the case of an individual applicant, the age range must be between 18 and 65 years.
• Must be a non-corporate and non-farm small and micro-enterprise.

Documents Required for the PMMY Scheme

• Proof of identity
  ‍Self-attested copy of Voter's ID card/Driving Licence/PAN Card/AadhaarCard/Passport/Photo IDs issued by Govt. authority etc.
• Proof of Residence
  ‍Recent telephone bill/electricity bill/property tax receipt (not older than 2 months) / Voter's ID card / Aadhaar Card / Passport of Individual / Proprietor/Partners/Bank passbook or latest account statement duly attested by Bank officials/Domicile certificate/certificate issued by Govt. authority/Local panchayat/Municipality etc.
• Applicant's Recent Photograph (2 copies) 6 months or older.
• Proof of Identity/Address of the Business
  ‍Copies of relevant licenses/registration certificates/other documents pertaining to the ownership, identity, and address of the business unit, if any

Other relevant documents, like proof of category, quotation, etc., are also required during the application process.

Application procedure

If you are eligible, applying for a MUDRA loan is relatively easy and can be done both online & offline.

Online

• Visit the official website of the PMMY-authorized financial institution from which you wish to avail of the Mudra loan.
• Download the relevant form depending on the type of loan (Sishu, Kishore, and Tarun).
• Fill out all the personal and business details and then “Submit” the form.
• Once received, the application form is verified and processed accordingly. Following the verification, the loan amount is approved and disbursed.
• The loan amount can be withdrawn with the help of a MUDRA card issued after the loan approval.

Offline

• Visit a PMMY-authorized bank or NBFC of your choice.
• Fill out the MUDRA loan application form with the required details.
• Submit the application form with a self-written business plan and other documents to substantiate those details.
• After successful document verification, the loan will get approved, and the desired amount will be credited.
• Must have the required infrastructure and targeted acceleration programs.

Benefits of the PMMY Scheme

• MUDRA loans can be taken for small amounts at affordable interest rates; also, the credit guarantee is borne by the Government.
• This scheme could be availed without any collateral or security.
• The Mudra loan scheme in collaboration with the “Make In India” campaign, helps in fostering innovation, facilitating investment, and improving skill development.
• Women Borrowers can avail this scheme with discounted interest rates.
• Relief of up to 1500 Crore will be provided to the Borrowers as Interest Subsidy under the Mudra Shishu Category.

Achievements Under PMMY Scheme

Here’s a table to highlight the achievements under the PMMY scheme in the last 3 years.

Frequently Asked Questions