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LLP Closure and Company Closure - vivekranjan - 10-22-2024

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In the world of business, every organization, whether a Limited Liability Partnership (LLP) or a company, undergoes various phases, from registration and growth to potential closure. Entrepreneurs must understand the detailed processes involved in both LLP registration and company registration, as well as the steps required for closure if things do not work out as planned. In this guide, we’ll explore the critical stages of forming and closing both an LLP and a company, providing a clear roadmap for business owners.
 
1. Introduction to LLP and Company Structures
Before investigating into registration and closure processes, it is essential to understand what makes a Limited Liability Partnership (LLP) and a company distinct. Both entities offer unique benefits to business owners, yet their legal frameworks, operational structures, and liability protections differ significantly.
An LLP is a hybrid structure that blends elements of both partnerships and companies. It allows partners to manage the business while protecting them from individual liabilities beyond their contributions to the partnership. Meanwhile, a company, whether private or public, is a legal entity that exists independently of its shareholders or directors. Companies provide limited liability protection but come with stricter compliance regulations and more complex management structures.

2. LLP Registration Process
Establishing an LLP involves several key steps, ensuring legal recognition and protection under the Limited Liability Partnership Act, 2008. Here’s a breakdown of the process:
Eligibility Criteria for LLP Registration
  1. Minimum partners: An LLP must have at least two partners. There is no maximum limit.
  2. Resident partner: At least one partner must be a resident of India.
  3. Designated Partner Identification Number (DPIN): Partners must obtain a DPIN before incorporation.
Steps Involved in LLP Registration
  1. Name reservation: Apply for the LLP’s unique name through the Ministry of Corporate Affairs (MCA) portal.
  2. Digital Signature Certificate (DSC): All partners must obtain a DSC for signing online forms.
  3. Filing incorporation documents: Submit Form FiLLiP (Form for Incorporating Limited Liability Partnership) and other required documents.
  4. LLP agreement: Draft and file the LLP agreement within 30 days of incorporation.
  5. Certificate of Incorporation: Once approved, the Registrar of Companies (RoC) issues the Certificate of Incorporation.
Key Compliance Post-Registration
  • Annual returns: LLPs must file Form 11 annually, detailing the LLP’s partners and their contributions.
  • Statement of accounts: LLPs are also required to file Form 8 annually, providing financial statements.

3. Company Registration Process
Company registration is governed by the Companies Act, 2013, and the process varies slightly depending on the type of company being formed (Private Limited, Public Limited, One Person Company, etc.).
Types of Companies
  • Private Limited Company: Ideal for small to medium-sized businesses. It restricts the transfer of shares and limits the number of shareholders.
  • Public Limited Company: Allows for the public trading of shares, typically suited for larger enterprises.
  • One Person Company (OPC): A company with only one shareholder, a simplified version of a private limited company.
Steps for Company Registration
  1. Obtain Digital Signature Certificate (DSC): Similar to LLP, all directors must obtain DSC.
  2. Director Identification Number (DIN): Apply for DIN for each director.
  3. Name approval: Submit an application to the MCA for name approval, ensuring it’s not similar to any existing company.
  4. Incorporation documents: Submit the SPICe+ form (Simplified Proforma for Incorporating Company Electronically) with documents like the Memorandum of Association (MoA) and Articles of Association (AoA).
  5. Certificate of Incorporation: Upon approval, the company receives a Certificate of Incorporation from the RoC.
Post-Registration Compliance
  • Annual financial statements: All companies must submit annual returns and audited financial statements to the MCA.
  • Board meetings: Companies must hold a minimum number of board meetings each year and maintain minutes of these meetings.
4. Why Businesses Close LLPs or Companies
There are several reasons a business may choose to close either an LLP or a company. Common motivations include:
  • Financial difficulties: Persistent losses or inability to repay debts.
  • Dormancy: If an LLP or company has not commenced operations or has remained inactive for a long period.
  • Regulatory non-compliance: Failure to meet statutory compliance can lead to forced closure.
  • Voluntary closure: The partners or shareholders may choose to wind up operations if the business objectives are met or if they wish to pursue other opportunities.

5. Procedure for LLP Closure
Closure of LLP can be done voluntarily or through a strike-off initiated by the RoC.
Voluntary Winding Up
  1. Resolution by partners: A resolution must be passed by the partners agreeing to wind up the LLP.
  2. Creditor’s approval: In the case of debts, consent from creditors is required.
  3. Filing closure forms: Submit Form 24 along with required documents, including the latest financial statements and an affidavit from the partners.
  4. Settlement of liabilities: Ensure all liabilities are settled before filing the closure documents.
Strike-Off by Registrar
The RoC may strike off an LLP if it has not been conducting business for two consecutive years or has defaulted on compliance. The RoC issues a notice to the LLP and removes its name from the register if no objection is raised.

6. Procedure for Company Closure
The process for closure of company is more complex, with different options available:
Voluntary Liquidation
  1. Board resolution: The board of directors passes a resolution to wind up the company.
  2. Appoint a liquidator: A professional liquidator is appointed to handle the winding-up process.
  3. Settle liabilities: The liquidator sells the assets and settles any outstanding debts.
  4. Final meeting: A final meeting is held to approve the liquidator’s report, followed by the submission of forms to the RoC.

Compulsory Liquidation
In cases where a company is unable to pay its debts, the court may order compulsory liquidation on the petition of creditors, employees, or other stakeholders.
7. Post-Closure Compliance for LLPs
After an LLP is closed, the following steps are essential:
  • Final filings: Submit all required forms to the MCA, including any pending tax returns.
  • Public notice: Issue a public notice of the dissolution for transparency.
  • Dissolution certificate: Upon completion, the RoC issues a dissolution certificate, confirming the LLP’s closure.
8. Post-Closure Compliance for Companies
After a company’s closure, the process includes:
  • Final accounts: Filing of final accounts with the RoC.
  • Settlement of creditors: Ensure all creditors are paid off before filing for closure.
  • Dissolution certificate: The RoC issues a certificate of dissolution, officially closing the company.
9. Tax Implications During Closure
During closure, both LLPs and companies must address pending tax liabilities, such as GST, income tax, or TDS. It’s essential to file final returns and clear all dues to avoid penalties.
10. Legal Consequences of Non-Compliance in Closure
Failure to comply with closure regulations can result in penalties, legal action, and personal liability for partners or directors. Both LLPs and companies must ensure they follow the legal process to avoid future complications.
11. Role of Insolvency Professionals
In the case of compulsory liquidation, insolvency professionals play a key role in managing the process, ensuring fair treatment of creditors, and facilitating asset liquidation.
12. LLP and Company Registration: Benefits of Proper Setup
Whether choosing an LLP or a company incorporation ensures legal protection, simplifies taxation, and enhances the credibility of the business. Registration also provides access to a range of benefits, including easier access to capital and liability protection for owners.
13. Conclusion: Importance of Compliance in Closure and Registration
Registering an LLP or company is a vital step for any entrepreneur, offering legal benefits and opportunities for growth. However, if the business needs to be closed, compliance with legal processes is equally important to avoid penalties and future liabilities. Entrepreneurs are advised to seek professional assistance during both registration and closure to ensure all regulations are met and that the process is smooth.