Striking of LLP - Legal Process and Guide. Understanding Legal Provision for Striking off dormant or Default LLP in India
The Ministry of Corporate Affairs (MCA) recently revised the LLP strike-off clause. The consequences for failing to file any statutory return are fairly strict and severe; thus, dormant LLPs should wound up their operations.
On May 16, 2017, the Ministry of Corporate Affairs issued a notification allowing a Limited Liability Partnership to be formed (LLP). It stated that LLPs who have not carried on their business and have not filed any returns with the relevant registrar and wish to be struck off must file over due returns for the years when the LLP really worked. It means that LLPs are not required to file returns for periods when the business was not operating. However, the chosen partners must produce a declaration regarding the closure of their business. This article answers a variety of questions and concerns about the MCA's strike notification, which was issued on May 16, 2017.
A Limited Liability Partnership (LLP) is a type of incorporation in which the partners have limited liability. It is a type of an body corporate, and it is a separate legal entity, just like a Private Limited Company. The LLP has the authority to enter into contracts and acquire property in its name.
The benefits of LLPs include the ease with which they can be formed, as opposed to Private Limited Company, the partners' limited responsibility, the ease with which ownership can be transferred, and the lack of a mandatory Statutory Audit. Another advantage of LLP is that the taxation rate is lower than that of a Private Limited Company.
The statutory provisions for the termination of an LLP are set out in Clause (b) of sub-rule 1, Rule 37 of the LLP Rules, 2008. According to the guidelines, there is no exception for filing the e-form (LLP-8 and LLP-11) for LLP strike off. Before an LLP may be struck off, it must complete its annual filing.
A) If an LLP has filed the e-forms (LLP-8 and LLP-11) for the end of the fiscal year and has not done any business or carried out any commercial operations since the beginning of the new financial year, the LLP can file an application for strike off of LLP with the Registrar of Companies (ROC) under the amendment rule, 2017, without the completion of annual filing forms since the time it ceased to carry on its business.
B) If an LLP has not completed the e-forms (LLP-8 and LLP-11)since its incorporation and wishes to petition for the provision of strike off under Rule 37, the LLP must complete the yearly filing up to the fiscal year 2021-2022 under the new regulations. It is critical to understand that the late filing fee for LLP yearly forms is Rs.100 each day up to the date of filing the form.
There are two key parts to this clause. First, an LLP must be non-operational or must not be carrying on any business for at least one year. Second, it must be documented whether an LLP submitted any annual forms up to the day when it ceased business or commercial operations.
The LLP rule makes no exceptions for filing LLP agreements in electronic form with the Registrar of Companies. As a result, before filing an application for LLP strike-off, the LLP agreement must be filed with the registrar of companies.
According to the modification requirements, if the LLP has not began its business or commercial operations since its incorporation, it must send a copy of the initial LLP agreement along with any change in the agreement.
As a result, under the amendment regulations, an LLP can make an application for strike off of LLP without filling the e-form (LLP-3)with the registrar of companies if the LLP has been inactive since its incorporation.
A) If a Limited Liability Partnership (LLP) begins operations but fails to file the original LLP agreement, it must file the LLP-3 along with the initial agreement in accordance with the modification rule.
B) If an LLP has not begun its business or operation since its incorporation and has not filed an LLP agreement or any amendment to the LLP agreement, the LLP may file an application for strike off with the registrar of companies without completing the filing of forms, according to the amendment rule, 2017.
C) If an LLP wants to apply for strike off after starting business and filing the initial agreement with the registrar of companies but failing to file the amendment in the initial LLP agreement, it must file an amendment in the initial LLP agreement in LLP-3 with the registrar of companies under the amendments rules. Again, it is critical to understand that the late charge for filing yearly forms is Rs.100 each day up to the date of filing the form.
It is crucial to establish whether the LLP has filed an initial LLP agreement and, if so, whether an update to the initial LLP agreement has been filed. If the LLP has not filed either of the above-mentioned agreements, it must be determined if the LLP has carried on any business or operations since its incorporation.
A Limited Liability Partnership (LLP) can close its doors in the following ways:
If an LLP has not carried on a business operation for a year or more, or if the LLP wishes to close its doors, it may apply to the registrar of companies to declare the LLP defunct and remove its name from the register.
The assets of the companies are disposed of to fulfil the liabilities, and any surplus is dispersed among the owners, when the LLP is wound up. An LLP can be wound up in one of two ways: a) voluntarily or compelled.
If an LLP is not carrying on any business for a year or more, or if the LLP wishes to close its doors, it can apply to the Registrar of Companies to declare the firm defunct and to remove the LLP's name from the register of LLPs. In this section, we will go over the procedure for removing the LLP's name.
To remove the LLP's name, an application in e-form 24 must be filed with the registrar of companies, together with the necessary documents:
The registrar or the LLP itself can strike off the name of the Limited Liability Partnership in Form-24 with the permission of all the partners. Following receipt of the application, the registrar shall notify the LLP and all of its partners of his intention to remove the LLP's name from the register. He will seek that they send representations together with copies of the necessary papers within 30 days of receiving the notice. After the time specified in the notification ends, the registrar, if satisfied that there have been no adverse submissions from LLP partners or the general public, shall strike the LLP's name from the register and publish a notice in the official gazette.
The provision for LLP strike-off is a great benefit for entrepreneurs that have dormant or defaulting LLPs. The implementation of the LLP Amendment Rules, 2017 has simplified the winding-up process. The owners can now strike off the LLPs that are no longer in business and are incurring fines. The procedure will ensure that the LLP owners are exempt from severe penalties.