Dissolution basically means formally ending or dismissing a partnership or official body. It is the process of dissolving or being dissolved, which means the process of disintegration. But in the legal context, dissolution has multiple meanings.
Dissolution of LLP is the stage of liquidation through which it is brought to an end. The assets & property of the concerned entity are redistributed.
Law provides for a formal process to be looked after for dissolution of registered entities like company, LLP, etc.
1. Types of LLP dissolution
The winding up of an LLP may be done in the following ways:
- Declaring LLP as Defunct
- Winding up as going concern.
A. Voluntary Winding up
B. Compulsory Winding up
Compulsory winding up is a process by which the tribunal orders the winding up and dissolution of LLP for the reasons mentioned below:
◦ if an LLP decides that LLP be wound up by the Tribunal;
◦ if, for a period of more than six months, the number of partners of the LLP is reduced below two;
◦ if an LLP is unable to pay its debts;
◦ if an LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
◦ if an LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
◦ if a Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
2. Defunct LLP
There are numerous LLPs which were incorporated but have not done any business or stop doing business. In order to reduce the number of bogus entities, MCA wide amendment has provided an easier way of dissolution by way of declaring it as defunct.
Defunct LLP is the LLP which has failed to carry on any business operations since its incorporation or for the period of one year or more. In such case, LLP can apply to the registrar for dissolution by way of strike off of the name of LLP from the register, by way of filing of e-form 24. Important covenants for filing of e-form 24 are mentioned below in the key requirements.
Registrar also has the power to strike off any defunct LLP after satisfying himself of the need to strike off and has reasonable cause, by fulfilling necessary procedure specified by law.
3. Key requirements
Pre-requisites for filing form-24 includes:-
- Cessation of all the commercial operations.
- Closure of the bank account in the name of LLP.
- All creditors need to be paid.
- LLP agreement if not filed, to be filed with MCA.
- LLP annual compliance forms – Form-8 and Form-11 must be filed up to the end of FY in which LLP has ceased to carry operations before filing Form-24.
- All assets to be
disposedoff to pay liabilities of LLP and surplus assets shall be distributed amongst the partners.
Following documents needs to be enclosed with e-form 24:-
(a) a CA certified statement of account disclosing nil assets and nil liabilities, made up to a date not earlier than thirty days of the date of filing of Form 24;
(b) an affidavit signed by the DP’s, either jointly or severally, to the effect,—
- that the LLP has not commenced any business or has ceased to carry on such business.
- that the LLP has no liabilities and indemnifying any liability that may arise even after striking off its name from the Register;
- that the LLP has not opened any Bank Account and where it had opened, the said bank account has since been closed.
- that the LLP has not filed any Income-tax return where it has not carried on any business since its incorporation, if applicable.
The dissolution process can be divided into 3 parts:-
A. Resolutions and affidavits
The first step for the voluntary dissolution is to pass a resolution of partners and creditors. After that, all of the partners shall sign an affidavit, bond along with other necessary documents and to file form for striking off an LLP with MCA.
B. Appointment of Liquidator and Liquidation report (not applicable for defunct LLP)
C. Dissolution by Tribunal
Along with the reports mentioned above, an application will be moved to the tribunal for dissolution. If the tribunal is satisfied with the process followed for winding up, it will pass the necessary order whereby LLP shall stand dissolved.
The liquidator then will file such order with the registrar.
Lastly, if registrar thinks fit, the registrar would publish the notice of such winding up/strike off of an LLP in its Official Gazette stating dissolution of the LLP. If it did not receive any objection in 30 days then the registrar will dissolve or strike off an LLP.
The dissolution of LLP is a two-way process requiring ample documents filing & process fulfilment. At LegalWiz we can take the responsibility to make all your processes stress-free, smooth & prompt with our professional assistance.