Winding Up of LLP Explained for Easy My Tax
Winding up of a Limited Liability Partnership (LLP) means closing the LLP’s business, selling its assets, paying off debts, and officially ending its existence. It is the formal process followed when the LLP decides to stop operations and dissolve as a legal entity.
Legal Framework for LLP Winding Up
The process of winding up LLPs in India is governed mainly by the LLP Act, 2008, and related rules:
- Section 65 and 67 of the LLP Act empower the government to set rules for LLP winding up, including applying certain company law provisions.
- The Limited Liability Partnership (Winding up and Dissolution) Rules, 2012 specify the procedures and forms involved.
- Certain provisions from the Companies Act, 1956 are also applicable to LLP winding up through government notifications.
Difference Between Winding Up and Dissolution of LLP
Winding up is the phase where the LLP settles its affairs by selling assets and paying creditors while still being a legal entity. Dissolution is the final step after winding up, where the LLP officially ceases to exist and is removed from the official registry.
Modes of LLP Winding Up
LLPs can be wound up through:
- Voluntary Winding Up: Partners agree to wind up the LLP by mutual consent.
- Compulsory Winding Up by Tribunal: A court or tribunal orders the winding up due to insolvency, non-compliance, or other reasons.
- Insolvency and Bankruptcy Code (IBC) Process: Under IBC, the National Company Law Tribunal (NCLT) handles insolvency and liquidation of LLPs when they cannot pay debts.
Voluntary Liquidation of LLP
Voluntary liquidation is when partners decide to close the LLP without court intervention. For this:
- The LLP must be solvent and able to pay all debts.
- Most designated partners must declare solvency through an affidavit.
- A resolution for voluntary liquidation is passed, and an insolvency professional is appointed as liquidator.
- Creditors, if any, must approve the liquidation.
- The LLP notifies the Registrar and Insolvency Board about the liquidation.
Voluntary Liquidation Process
The steps include:
- Declaration of solvency with supporting financial documents.
- Passing a resolution to liquidate and appoint a liquidator.
- Public announcement inviting creditors to submit claims.
- Verification and settlement of claims.
- Selling the LLP’s assets and collecting dues.
- Depositing proceeds in a separate bank account.
- Distribution of remaining money to partners after paying liabilities.
Winding Up of LLP by Tribunal
The Tribunal may order winding up if:
- LLP has fewer than two partners for six months.
- LLP cannot pay its debts.
- LLP acts against national interest.
- LLP fails to comply with filing requirements.
- Other just and equitable reasons.
Tribunal Winding Up Procedure
- Filing a petition to the Tribunal.
- Tribunal examines and may order winding up.
- Appointment of a liquidator by the Tribunal.
- Public announcement and inviting claims from creditors.
- Settling creditors’ claims and liquidating assets.
- Distribution of remaining assets to partners.
- Final dissolution order filed with the Registrar.
Insolvency Proceedings Under IBC for LLPs
When LLPs are insolvent, the IBC process includes:
- Filing for insolvency at the NCLT.
- Moratorium period where legal actions are paused.
- Appointment of Insolvency Resolution Professional (IRP).
- Formation of Committee of Creditors (CoC).
- Approval or rejection of a resolution plan.
- If rejected, liquidation and asset sale.
- Final dissolution after liquidation.
Easy My Tax Support for LLP Winding Up
Easy My Tax offers complete assistance in LLP winding up procedures. Our experts help you:
- Prepare necessary declarations and documents.
- Guide you through voluntary or tribunal winding up.
- Coordinate appointment of liquidators and manage notifications.
- Ensure all compliance requirements are met efficiently.
Get expert support from Easy My Tax to make your LLP winding up process smooth and hassle-free. Contact us for personalised assistance today.
