Close a Limited Liability Partnership – LLP
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Closure of a Limited Liability Partnership
A proper legal procedure is required to close a Limited Liability Partnership (LLP) as it is a separate legal entity. There are two possible ways to close an LLP. Its either through Strike off or Winding up. Both have different procedures. However Strike Off is an easier way of closing an LLP. Winding up is also a lengthy process and is expensive too. An LLP which has not be operative for more than a year can opt for the Strike Off method which is simple and straight forward. Typically the ministry publishes the notice. After a certain period, the name is struck off and the LLP ceases to exist as a business entity.
Two ways of dissolving a partnership firm
If the dissolution of the firm is mutually accepted by the partners and doesn’t have any disputes, the partnership firm is dissolved through a dissolution agreement. The agreement is put together by all partners in the firm and agree on the terms and conditions to clear the liabilities and distribute the assets as mutually agreed. This is a more straight forward and easier process. It is also possible that one partner sends a dissolution agreement to all other partners in writing.
The most important point to note here is that a court intervention is possible only if the partnership is registered with RoF. If it’s not registered, the court would have little role to play in dissolving the partnership firm. It’s possible only in exceptional cases where one partner becomes incapable to carry out his duties due to incapability, or unsoundness of mind, if a partner is guilty of misconduct that can harm the business, repeated breach of the partnership agreement by a partner. Otherwise, an unregistered partnership firm cannot be dissolved by the court.
Documents Required for winding up of partnership firm
THE PROCEDURE
Procedure for dissolution of Partnership Firm
- Collection for information for dissolution.
- Collect documents and review the required list
- Drafting of the dissolution agreement
- Drafting of the affidavit, indemnity bond and other documents
- Provide duly executed affidavit & indemnity bond
- Provide signed documents after review
- Execution of dissolution agreement
FREQUENTLY ASKED QUESTIONS
Explore Dissolving a partnership Firm
What is included in the dissolution deed of a partnership firm?
The dissolution deed covers all aspects of closing the business. To begin with it clearly mentioned the date on which the partnership will cease to transact for business and the date of winding up. It also defines what a partner is permitted to do after the date of dissolution. A detailed list of assets and liabilities is made including any existing contracts that may need to be terminated. The partners then come together to approve the final list of accounts. Post the liabilities being discharged, any assets left in the firm are divided amongst the partners as mutually agreed and defined. All records are put together. The last step is notification of the dissolution to the authorities.
What is the process of setting accounts for winding up of the partnership ?
When a partnership firm is wound up, the first priority is for third party debts and payments, this is followed by loan repayments taken from any partner. Post this the capital infused by each partner is paid off to them. The remaining assets if any are divided in the profit-sharing ratio defined in the agreement.
Do the partners have any liabilities after dissolution of the firm?
Yes. The partners are liable for all third party for any act done before the dissolution. The liabilities are considered as completed only when all the acts taken up before the dissolution are addressed completely. This is then followed by a public notice of dissolution.
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