Winding Up of LLP in India
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 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.
At Filingin, we offer expert guidance and support throughout the winding-up process, ensuring compliance with all legal requirements and minimizing potential complications. Contact us today for a seamless and compliant winding-up procedure for your LLP.
What is the Winding up of an 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 procedure takes place when the LLP ceases its business activities and is formally dissolved as a legal entity.
Legal Framework Governing LLP Winding up:
The rules for winding up and dissolution of LLPs in India are governed by the following provisions:
- Section 65 of the LLP Act, 2008: This section grants the Central Government the authority to issue rules regarding the winding up and dissolution of LLPs.
- Section 67 of the LLP Act, 2008: This section allows the Central Government to apply relevant provisions from the Companies Act, 1956 to the winding-up process of LLPs.
- Notification GSR 6(E), dated 6th January 2010: This notification allows the Central Government to modify provisions of the Companies Act to apply them to LLPs.
- LLP (Winding up and Dissolution) Rules, 2012: These rules provide specific details about the procedures, forms, and fees associated with the winding-up process.
Procedure for Voluntary Liquidation:
The voluntary liquidation process involves several key steps, including:
- Declaration of Solvency (DOS): A declaration stating that the LLP can settle all its debts.
- Resolution: Partners pass a resolution for liquidation and appoint a liquidator.
- Creditors' Approval: Creditors representing two-thirds of debt value must approve the resolution.
- Liquidation Proceedings: The LLP ceases operations and assets are liquidated.
Procedure for Winding up an LLP by a Tribunal:
The process of winding up an LLP through a Tribunal involves the following steps:
- Step 1: Petition for Winding Up: A petition is filed with the Tribunal by the LLP, its creditors, partners, or authorized representatives.
- Step 2: Tribunal's Decision: The Tribunal reviews the petition and, if valid, issues a winding-up order.
- Step 3: Appointment of Liquidator: The Tribunal appoints a Liquidator to manage the winding-up process and asset liquidation.
- Step 4: Public Announcement: The Liquidator publicly announces the winding-up, inviting creditor claims and settlement of dues.
- Step 5: Settlement of Claims: The Liquidator verifies and settles creditor claims based on legal priorities.
- Step 6: Liquidation of Assets: The LLP’s assets are liquidated to generate funds for debt repayment.
- Step 7: Distribution of Remaining Assets: After debt settlement, remaining assets are distributed among the partners as per the LLP agreement or law.
- Step 8: Application for Dissolution: Once the debts and distributions are completed, the Liquidator applies for the LLP’s dissolution.
- Step 9: Filing with Registrar: The dissolution order is filed with the Registrar, and a public notice is issued declaring the LLP dissolved.
Comparison Between LLP Winding Up And Dissolution:
Here’s a quick comparison between winding up and dissolution:
|
Basis
|
Winding Up
|
Dissolution
|
|---|---|---|
|
Meaning
|
The process of selling assets and settling debts.
|
The final closure where the LLP ceases to exist.
|
|
Legal Entity
|
The LLP remains a legal entity during winding up.
|
The LLP remains a legal entity during winding up.
|
Modes of LLP Winding up:
LLPs can be wound up in different ways, each having its own procedures:
- Voluntary Winding Up: This is initiated by the LLP partners themselves based on mutual agreement or the terms set out in the LLP agreement.
- Insolvency and Bankruptcy Code (IBC), 2016: Under the IBC, if an LLP is unable to pay its debts, it can be wound up through a court-driven process initiated by the National Company Law Tribunal (NCLT).
- Compulsory Winding Up by Tribunal: This method is initiated by an external order, typically due to reasons like insolvency, non-compliance, or other breaches of law.
- Voluntary Liquidation: A voluntary liquidation is a self-initiated process where the LLP’s partners decide to dissolve the LLP’s affairs without court intervention.
Pre-Requisites for Voluntary Liquidation:
To begin voluntary liquidation under the Insolvency and Bankruptcy Code (IBC), 2016, the LLP must meet the following criteria:
- Solvency: The LLP should be solvent and capable of paying off all debts in full.
- Declaration of Solvency: A declaration from designated partners confirming the LLP's ability to pay off debts.
- No Intent to Defraud: The process must not be carried out with fraudulent intent.
Winding up of LLP by Tribunal:
The Tribunal can initiate winding up for several reasons such as insolvency, non-compliance, or activities against national interest. The procedure for winding up by the Tribunal is as follows:
- Petition for Winding Up: A petition is filed to the Tribunal by the LLP, creditors, partners, or authorized personnel.
- Tribunal's Order: If the Tribunal finds valid reasons, it passes a winding-up order.
- Appointment of Liquidator: The Tribunal appoints a liquidator to manage the process.
- Settlement of Claims: The liquidator settles creditors’ claims by liquidating assets.
- Dissolution: Once all assets are liquidated and debts paid, the LLP is dissolved.
Insolvency Proceedings Under IBC, 2016:
The Insolvency and Bankruptcy Code (IBC), 2016 introduces a legal framework for the insolvency and liquidation of LLPs. Key stages in the insolvency process include:
- Initiation: The LLP, creditors, or partners file an application with NCLT if the LLP is unable to pay debts.
- Moratorium: NCLT orders a moratorium, halting legal actions against the LLP.
- Insolvency Resolution Professional (IRP): An IRP is appointed to manage the LLP’s operations and assets.
- Resolution Plan: The IRP proposes a resolution plan to restructure debts or liquidate assets.
- Liquidation: If the resolution plan fails, the LLP’s assets are liquidated and proceeds are distributed to creditors.
FilingIn offers specialized services to facilitate the winding up of Limited Liability Partnerships (LLPs), ensuring a smooth and compliant process from start to finish. Our experts provide assistance in all aspects of the winding-up procedure, including:
- Preparation of necessary documentation
- Declaration of solvency
- Resolution passing
- Appointment of liquidators
With FilingIn, you can confidently navigate the complexities of the LLP winding-up process. We guide you through every step, ensuring all legal requirements are met and the process is completed efficiently.
Frequently Asked Questions in India
What does "winding up" of an LLP mean?
Winding up of an LLP refers to the formal process of closing down the LLP’s operations, selling its assets, settling its debts, and distributing any remaining assets to the partners. It is the process through which the LLP ceases to exist as a legal entity.
What are the different modes of winding up an LLP?
An LLP can be wound up in the following ways:
- Voluntary Winding Up: Initiated by the partners of the LLP.
- Compulsory Winding Up by Tribunal: Initiated by a Tribunal due to reasons such as insolvency, non-compliance, or other statutory breaches.
- Insolvency and Bankruptcy Code (IBC): A process through which an LLP is liquidated due to insolvency under the provisions of IBC, 2016.
What is the difference between winding up and dissolution of an LLP?
- Winding Up is the process of selling the LLP’s assets, settling its debts, and preparing for its closure. During this phase, the LLP still exists as a legal entity.
- Dissolution is the final step where the LLP is officially closed and its name is removed from the Registrar of Companies (RoC), marking the end of the LLP’s existence.
Can an LLP wind up voluntarily?
Yes, an LLP can opt for voluntary winding up if the partners agree, or if the LLP is solvent and wishes to dissolve by mutual consent. This process is generally initiated by the partners and requires approval from creditors if the LLP has any debts.
How long does it take to wind up an LLP?
The duration of winding up an LLP can vary depending on factors such as the complexity of the LLP’s affairs, the settlement of debts, and the liquidation of assets. Generally, it may take a few months to a year to complete the entire process.
Who is responsible for the winding up process of an LLP?
During a voluntary winding up, the partners appoint a liquidator to manage the process. In case of compulsory winding up, the Tribunal appoints a liquidator to handle the winding up and liquidation of assets.
What are the steps involved in winding up an LLP voluntarily?
The key steps for voluntary winding up of an LLP include:
- Declaration of solvency by the partners.
- Passing a resolution for winding up.
- Appointment of a liquidator.
- Settlement of creditors’ claims.
- Sale of assets and distribution of remaining assets.
- Application for dissolution once the process is complete.
What happens if an LLP is insolvent?
If an LLP is unable to pay its debts, it can be wound up under the Insolvency and Bankruptcy Code (IBC), 2016. This involves the appointment of an Insolvency Resolution Professional (IRP) to manage the affairs and assets of the LLP. The LLP’s assets may be liquidated, and the proceeds distributed to creditors.
Can a partner initiate the winding-up process of an LLP?
Yes, a partner or a majority of partners can initiate the voluntary winding up process by passing a resolution for winding up. However, if the LLP is insolvent or facing statutory violations, winding up may be initiated by a tribunal.
What are the consequences of not winding up an LLP properly?
Failure to follow the proper procedure for winding up can lead to legal and financial complications, including penalties or legal action by creditors, non-compliance with tax laws, and the LLP continuing to be liable for its obligations. It is crucial to ensure that the winding-up process is completed in accordance with legal requirements.
