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Winding Up - LLP

Facilitate the dissolution process of your Limited Liability Partnership (LLP) with our comprehensive Winding Up services, ensuring a smooth and legally compliant closure of your LLP's operations.

Winding Up - LLP

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Compliance

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, safeguarding the interests of all parties involved.

Ask Associates can provide expert guidance and support throughout winding up your LLP, ensuring compliance with all legal requirements and minimizing potential complications. Contact us today to get started and ensure a seamless and compliant winding-up procedure for your LLP.

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 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
  • Section 67 of the LLP Act, 2008
  • Notification vide GSR 6(E), dated 6th January 2010
  • Limited Liability Partnership (Winding up and Dissolution) Rules, 2012

Comparison Between LLP Winding Up and Dissolution of an LLP

Winding up and dissolution are two distinct stages in ending the operations of a Limited Liability Partnership (LLP). Here’s a simplified comparison:

  • Winding Up:

    • Meaning: Winding up is when the LLP prepares to close by selling assets and paying off creditors.
    • Legal Entity: During winding up, the LLP remains a legal entity and can engage in legal proceedings.

  • Dissolution:

    • Meaning: Dissolution is the final step, where the LLP is officially closed and ceases to exist after all legal procedures are completed.
    • Legal Entity: After dissolution, the LLP no longer exists as a legal entity, its name is removed from ROC records, and it cannot be sued or sue.

In essence, winding up is settling the LLP’s affairs, and dissolution is the official end of the LLP’s existence.

Modes of LLP Winding Up

An LLP can be wound up through various methods, each with its own set of procedures and legal implications.

  • Voluntary Winding Up:
    • In this method, the partners of the LLP decide to wind up the affairs of the partnership voluntarily.
  • Insolvency and Bankruptcy Code (IBC), 2016:
    • The National Company Law Tribunal (NCLT) has the authority to order the liquidation of an LLP under certain conditions outlined in the IBC, 2016.
  • Compulsory Winding Up by the Tribunal:
    • This mode is initiated by an external order rather than the LLP’s partners, typically for reasons such as non-compliance with statutory requirements or inability to pay debts.

Voluntary Liquidation

Voluntary liquidation of an LLP is a self-initiated process where the partners decide to dissolve and wind up the LLP’s affairs without external compulsion, such as a court order. This decision can be based on various reasons, including financial struggles or mutual agreement among partners to cease operations.

Pre-requisites for Voluntary Liquidation

To initiate a voluntary liquidation under the Insolvency and Bankruptcy Code (IBC), 2016, a Limited Liability Partnership (LLP) must meet the following pre-requisites:

  • Solvency
  • Declaration by Designated Partners
  • No Intent to Defraud
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Procedure for Voluntary Liquidation Of LLP

The process of voluntary liquidation for a Limited Liability Partnership (LLP) involves several critical steps as outlined below:

  1. Commencement of Liquidation:

    • Declaration of Solvency (DOS)
    • Accompanying Documents
    • Resolution
    • Creditors’ Approval
    • Notification

  2. Appointment and Remuneration of Liquidator:

    • Appointment of Liquidator
    • Remuneration of Liquidator

  3. Reporting:

    • Preliminary Report
    • Annual Status Report
    • Final Report

  4. Public Announcement by the Liquidator

  5. Verification of Claims

  6. Realisation of Assets

  7. Deposit and Distribution of Proceeds

Winding Up Of LLP By Tribunal

Winding up of an LLP by a Tribunal can be initiated for several reasons, including voluntary winding up, insufficient number of partners, inability to pay debts, activities against national interest, non-compliance with statutory filings, or just and equitable grounds.

Procedure for winding up of an LLP by a Tribunal

The procedure for winding up an LLP by a Tribunal involves several steps to ensure an orderly and fair dissolution of the LLP. Here’s an overview of the process:

  1. Petition for Winding Up

  2. Tribunal’s Decision to Wind Up

  3. Appointment of Liquidator

  4. Public Announcement

  5. Settlement of Claims

  6. Liquidation of Assets

  7. Distribution of Assets

  8. Dissolution of LLP

  9. Filing of Order with Registrar

Insolvency Proceedings for LLPs under the IBC, 2016

The Insolvency and Bankruptcy Code (IBC), 2016 introduced a comprehensive legal framework for insolvency resolution and liquidation for corporate entities, including Limited Liability Partnerships (LLPs) in India. The IBC aims to consolidate and amend the laws relating to reorganization and insolvency resolution in a time-bound manner to maximize the value of assets, promote entrepreneurship, and increase credit availability.

Under the IBC, the process of winding up an LLP due to insolvency involves several key steps:

  • Initiation: The process can be initiated by the LLP itself, its creditors, or partners by filing an application to the National Company Law Tribunal (NCLT) demonstrating that the LLP cannot pay its debts.

  • Moratorium: Upon acceptance of the application, the NCLT orders a moratorium period during which all legal actions against the LLP are halted. This provides a breathing space for the resolution process.

  • Insolvency Resolution Professional (IRP): The NCLT appoints an Insolvency Resolution Professional (IRP) to manage the affairs of the LLP during the insolvency process. The IRP takes control of the LLP’s operations and assets and works to draft a resolution plan.

  • Committee of Creditors (CoC): The IRP constitutes a Committee of Creditors, which plays a crucial role in reviewing and approving the resolution plan or deciding on liquidating the LLP if the resolution plan is not feasible.

  • Resolution Plan: The resolution plan outlines the strategy for the insolvency resolution, which could involve restructuring the LLP’s debts, selling assets to repay creditors, or a combination of measures. The plan needs the approval of the CoC and the NCLT.

  • Liquidation: If the resolution plan is not approved within the stipulated time frame (typically 180 days, extendable by another 90 days), or if the CoC decides on liquidation, the LLP is liquidated. The assets are sold, and the proceeds are distributed to the creditors following the priority established under the IBC.

  • Dissolution: Once the assets have been liquidated and the proceeds distributed, the LLP is dissolved, marking the end of the winding-up process.

Ask Associates: Your Partner in LLP Winding Up

Ask Associates offers specialized services to facilitate the winding up of Limited Liability Partnerships (LLPs), ensuring a smooth and compliant process from start to finish. Our team of experts provides comprehensive support, including preparation of necessary documentation, declaration of solvency, resolution passing, and appointment of a liquidator. We guide you through each step, ensuring that all legal requirements are met and the process is conducted efficiently. With Ask Associates, you can confidently navigate the complexities of LLP winding up, providing a seamless transition and closure of your business affairs.

Contact our experts today for personalized assistance.

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