How to Shut Down an LLP in India Voluntarily?

A limited liability partnership (LLP) is a flexible legal business structure in India that offers the benefits of both a partnership and a company, which is a limited liability for partners and easier compliance. There may come a time when partners decide to shut it down which may be due to no business activity, financial constraints or other personal or professional reasons.

It is important to legally close down the LLP rather than leave it inactive, which can lead to penalties or cause legal issues. The Ministry of Corporate Affairs (MCA) has a proper process for this, and following it ensures a smooth and hassle-free closure. This piece of content will provide you with a detailed guide on how to shut down an LLP in India.

Types of LLP Closure in India

Shutting down an LLP in India can be done in two main ways. They are voluntary closure and compulsory closure by the Registrar of Companies (ROC). The difference is mentioned as follows:

• Voluntary Closure

This is when the partners of the LLP themselves decide to close the business. It usually happens when the LLP has not been active for at least one year and has no pending debts or liabilities. The LLP must file an application using Form 24 to the MCA, along with required documents such as the declaration from partners, no liability statement, and consent from creditors if applicable. Voluntary closure is the most peaceful and cost-effective way to shut down operations.

• Compulsory Closure

In certain cases, the registrar can strike off an LLP from the register if it is found to be non-compliant, like not filing annual returns or financial statements for two consecutive years. This is called a compulsory or "suo-moto" strike-off. It can lead to penalties and legal trouble for the partners, so it is best to avoid it at all costs.

Let us learn how to close a company voluntarily.

Pre-Conditions before Voluntary Closure of an LLP in India

Before applying for the voluntary closure of an LLP through Form 24, there are a few important conditions that you need to fulfill. These steps will ensure that the LLP is clean and free of legal or financial complications:

• File all the Pending Annual Returns: The LLP must file overdue Form 8, which is the statement of accounts, and Form 11, which is the annual return up to the financial year in which it stopped all business operations.
• File Income Tax Returns: The LLP should file income tax returns until the year it carried out any business or commercial activities.
• No Business in the Past 1 Year: The LLP must not have done any kind of business or financial transaction in the past 1 year from the date of closure.
• Clear all Liabilities and Sell Assets: Before the closure, the LLP must sell off all of its assets and pay any dues or liabilities completely.
• Ensure the LLP Agreement is Filed: The initial LLP agreement must have been filed with the ROC during the incorporation.

How to Shut Down an LLP in India Voluntarily?

If your LLP is no longer active and you want to close it legally and hassle-free, the MCA offers a simple process using Form 24. The following details include a step-by-step guide to shutting down an LLP in India:

Step 1: Hold a Meeting of Partners

You need to start by holding an internal meeting where all partners agree to shut down the LLP. This consent must be documented and signed, as mutual agreement is necessary for closure.

Step 2: Prepare and Notarize the Required Documents

Prepare the documents after holding the meeting:

• An affidavit from all partners stating the LLP has no business activity
• An indemnity bond confirming no liabilities exist
• A statement of accounts showing zero assets/liabilities
• Consent letters from creditors (if applicable)

 Step 3: File Form 24 with the Registrar of Companies (ROC)

Log in to the MCA portal, fill out Form 24, and upload all the necessary documents. There is a small filing fee of Rs. 100. Make sure all the details are accurate to avoid any rejection.

Step 4: Wait for ROC Verification and Approval

Once you have submitted the form, the ROC will review your application. If everything is in order, the LLP will be officially gone from the records.

Timeline for Closure

The voluntary closure process usually takes 2 to 4 months, which depends on how quickly documents are submitted and verified.

Documents Required for LLP Closure

Here is the list of documents needed to shut down an LLP:

• Statement of Accounts
• Affidavit by all partners
• Indemnity Bond signed by all partners
• Consent of Creditors
• Board Resolution or Partners’ Resolution for closure
• Copy of LLP Agreement
• PAN Card of LLP
• Identity and Address Proof of Partners
• Income Tax Return acknowledgment
• Copy of initial LLP incorporation documents
• Application in Form 24
• CA Certification
• Latest ROC filings
• Closure letter from the bank

Importance of Shutting Down an LLP in India

Here is why officially closing an LLP is important in India:

• Avoid Unnecessary Penalties: Inactive LLPs are still required to file annual returns, income tax filings, and maintain books of accounts. Failure to do so can lead to huge penalties starting from Rs. 100 per day per form with no maximum cap.
• Stay Legally Compliant: Non-compliance can result in legal action from the ROC and even the disqualification of partners from becoming directors or starting new companies in the future.
• Peace of Mind: Once an LLP is closed legally using Form 24, you are free from the burden of annual filings, audits, and compliance stress, even if there's no business activity.
• Clear Public Records: A proper closure ensures that your LLP is officially gone from the MCA records, which avoids confusion for future ventures, background checks, or credit reports.
• Professional Reputation: Keeping a non-operating LLP on the records will reflect poor business management. Proper closure adds to your credibility in the professional and entrepreneurial space.

What is the Eligibility for LLP Closure?

Before you start the process of shutting down an LLP, it is important to know whether your LLP qualifies for closure. The MCA has set some basic conditions that must be met, especially in the case of voluntary closure using Form 24.

When is an LLP Eligible for Closure?

An LLP can apply for closure only if it is not carrying on any business or commercial activity. This means the LLP should have been inactive for at least one year from the incorporation date or from the time it stopped its operations.

Key Conditions for Closure:

1. No Business Activity: The LLP should not have carried out any business or financial transaction for at least one full year.
2. No Assets or Liabilities: The LLP must not have any outstanding debts, dues, or assets. All bank accounts should ideally be closed, and the final statement of accounts must show a zero balance.
3. Consent of Partners: All partners must agree to shut down the LLP. Their consent is recorded through affidavits and indemnity bonds, which must be submitted along with the application.

Common Mistakes to Avoid While Closing an LLP

Avoiding these common mistakes can save you from delays, rejections, or even legal complications during the LLP closure process. The common mistakes are listed in the following details:

1. Not Clearing Liabilities: Many LLPs forget to settle outstanding dues or loans before applying for closure. The LLP must have zero liabilities, or the application will be rejected.
2. Submitting Incomplete or Missing Documents: Important documents like affidavits, indemnity bonds, or statements of accounts are sometimes missing or not properly notarized. All documents must be updated, signed correctly, and submitted together.
3. Incorrect or Inaccurate Form 24 Filing: Errors in LLP name, LLPIN (identification number), or business cessation date can lead to rejection. Always double-check all the information before submitting the form.
4. Using Outdated Statements of Accounts: The statement of accounts must not be older than 30 days from the filing date. Submitting an old one will delay the process.
5. Ignoring Professional Help When Needed: If you're unsure about legal terms or document preparation, it's better to consult a CA or CS to avoid costly mistakes.

Closing an LLP in India may feel complicated at first, but with the right steps and documents, the process can be smooth and stress-free. Whether you’ve stopped doing business or want to move on to new ventures, it is important to officially close the LLP to avoid future penalties and legal issues.

Filing Form 24 with the MCA will ensure that all dues are cleared. So, submitting accurate documents is the key to a successful closure. Here you got a detailed explanation of how to shut down an LLP. Contact Online Legal India to get support and assistance from professional experts in filing for an LLP closure.