Manner and process to Close LLP through Strike off Process

When two or more people get together to carry on lawful business in form of a body corporate, whereby internal working of is governed thorough an agreement executed among them, such arrangement as a form of business is called as Limited Liability Partnership (LLP).

LLP being a body corporate came into existence by act of law; similarly its closure will take effect only through procedural aspects given under the LLP Act 2008 (“Act”) and LLP Rules 2009 (“Rules”).

In this article we will discuss in length the manner and procedure to close LLP through the process of Strike off.

Manner of Strike off of LLP

Name of LLP can be removed from the register of LLP in two ways:

  1. Suo Moto Strike off by Registrar
  • Suo Moto Strike off by LLP

Strike off by Registrar:

When would Registrar initiate Strike off?

Government of India has started a drive in 2017 to cleanse the database of companies by removing shell companies including LLP. These entities are primarily created with the intention of money laundering or to avail tax exemptions through paper transactions.

As per the Ministry7,191 LLPs have been identified for action under Section 75 of the LLP Act, 2008, due to non-filing of financial statements for the years 2016-17, 2017-18.

To track such entities, Ministry of Corporate Affairs and Central Board of Direct Taxes (CBDT) had concluded a formal Memorandum of Understanding (MoU) for data exchange which will enable sharing of specific information such as PAN data in respect of corporates, Income Tax returns (ITRs) of corporates, financial statements filed with the Registrar by corporates, returns of allotment of shares, audit reports and statements of financial transactions (SFT) received from banks relating to corporates.

As instructed by the Ministry, respective Registrar of States is taking action and issuing notice that are non-compliant in filing financial statements of LLP for more than 2 years.

Procedure

Registrar of LLP may strike of name of LLP by following given process:

  1. As per rule 37(1) of the LLP when the Registrar has reasonable cause to believe that LLP is not carrying any business or operations for a period of 2 years or more, Registrar can initiate to strike off the name of the LLP.
  2. Registrar will send a notice to LLP and all its partners regarding its intention of striking off of the LLP and seek for representation along with relevant documents within 30 days from the date of notice.
  3. Copy of notice will be simultaneously placed on the website of Ministry of Corporate Affairs for information of general public.
  4. After the expiry of prescribed time period, Registrar if satisfied may decide not to remove name of the LLP, or if no representation received or representation is not satisfactory then the Registrar will strike off the name of the LLP from the Registers of LLP and publish the same in the official gazette. Upon publication, LLP shall stand dissolved.
  5. Strike off by LLP:

    Why LLP apply for Strike Off?

    Since creation of LLP is easy and have its benefits over traditional partnership firm besides having features of a body corporate, people are willing to start their business in form of LLP with a vision to take them to the heights and put their efforts to deliver the same, however sometimes things doesn’t turn out the way one expected it to be, since any business not only depends on the hard work of its owner but it is simultaneously depended upon n number of external factors which often become unfavourable for business. In such scenario, partners may mutually decide to close their LLP as they may not be able to match even the break-even cost.

    Key note

    LLP may strike of name of LLP upon application made by LLP itself, if it does not carry any business for a period of one year or more by following below given process:

    1. LLP should pass resolution at its meeting of partners to make application for striking off name of LLP.
    2. If LLP is governed under any other regulatory authority, LLP should ensure to obtain approval from such authority for striking off its name.
    3. After assent of all partners and obtaining no objection from creditors, LLP will make application in E Form 24 for striking off name of LLP.
    4. LLP should ensure that there is no pending compliance with respect to annual filing of LLP and filing of ITR.
    5. LLP should mention the reason for filing application along with documents like statement of accounts, affidavits, ITR return.
    6. Registrar, after receipt of application will display the details on the website of Ministry of Corporate Affairs for information of general public.
    7. If registrar is satisfied with the reasons and documents provided by the LLP, it can approve the application of LLP and strike off the name of LLP and publish the same in the official gazette. Upon publication, LLP shall stand dissolved.

    Other Key Points

    • LLP should file suo moto application on two grounds:
      1. It has not commenced any business activity since incorporation for 1 year
      2. It has commenced activity but it ceased to carry on such business for more than 1 years
    • As per rule 37 (1A) of LLP Amendment Rules 2017 , LLP should file overdue returns in Form 8 and Form 11 up to the end of the financial year in which the limited liability partnership ceased to carry on its business or commercial operations before filing Form 24;
    • As per explanation of rule 37 introduced by LLP Amendment Rules 2017 the date of cessation of commercial operation is the date from which the Limited Liability Partnership ceased to carry on its revenue generating business and the transactions such as receipt of money from debtors or payment of money to creditors, subsequent to such cessation will not form part of revenue generating business.
    • LLP is required to provide indemnification for any liability that may arise due to strike off of LLP.
    • As per rule 21 of LLP rules 2009, LLP is required to fill Form 3 for submission of agreement of LLP with the Registrar within 30 days of its incorporation. However if any LLP has not filed E Form 3, it can still apply of strike off as per amended rules introduced through LLP Amendment Rules 2017 as given below:
    • While making application of strike off, LLP should file “copy of the initial limited liability partnership agreement, if entered into and not filed, along with changes thereof in cases where the Limited Liability Partnership has not commenced business or commercial operations since its incorporation.”

      Thus if any LLP has not filed agreement after incorporation, such LLP can also apply for strike off by submitting initial agreement or amended agreement if any.

      Other Legal Aspect

      • The Registrar of LLP have power to call for undertaking from designated partners and partners to the effect that they have made sufficient provision for realisation of all amount due to the LLP and for payment of its liability and obligation within reasonable period of time.
      • For the purpose of discharging the obligations, the assets of the LLP will be made available for payment even after   date of order of removing name of LLP from register of LLP.
      • The liability, if any, of every designated partner shall continue and may be enforced as if the LLP has not been dissolved.
      • Tribunal has power to wind a LLP whose name has been struck off from the register of LLP.

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