LLP Strike Off | LLP Closure

Fast Track Exit (FTE) Scheme for LLP Closure

The Fast Track Exit (FTE) Scheme is a simplified process introduced by the Ministry of Corporate Affairs (MCA) to allow inactive LLPs to shut down quickly with minimal compliance requirements. Under this scheme, LLPs that have no assets or liabilities, no business operations for the past one year, and no pending litigations can apply for voluntary closure without undergoing extensive winding-up procedures.

The primary objective of the FTE Scheme is to provide an easy exit route for dormant or defunct LLPs that no longer intend to continue their business. LLPs registered under the Limited Liability Partnership Act, 2008, can avail themselves of this scheme. However, certain LLPs, such as those with outstanding loans or dues to creditors, those under investigation, or those involved in pending disputes, are ineligible for this scheme.

To apply for the Fast Track LLP Closure, the LLP must file Form 24 with the Registrar of Companies, along with supporting documents such as an indemnity bond, affidavit, statement of accounts, and resolution passed by designated partners. Once the RoC verifies the application and is satisfied that the LLP meets the criteria, it publishes a notice in the Official Gazette for objections, if any. If no objections are raised, the RoC strikes off the LLP’s name from the register, legally dissolving it.

The FTE Scheme offers a cost-effective and time-saving alternative to the traditional winding-up process, making it ideal for LLPs seeking to exit the corporate framework without heavy legal and financial burdens. However, ensuring all statutory compliances are met before applying is crucial to avoid complications.

What is C-PACE for LLP Strike-Off?

The strike-off process is governed by Section 75 of the Limited Liability Partnership Act, 2008, and the Limited Liability Partnership (Amendment) Rules, 2017. These provisions provide a simple mechanism for dissolving non-operational LLPs, eliminating the need for complex winding-up proceedings. The Ministry of Corporate Affairs (MCA) has further streamlined the process through the Centre for Processing Accelerated Corporate Exit (C-PACE), making the Form 24 LLP closure application faster and more efficient.

On April 17, 2023, the Ministry of Corporate Affairs (MCA) introduced a significant amendment by establishing the Registrar, Centre for Processing Accelerated Corporate Exit (C-PACE). This dedicated authority is responsible for processing and handling LLP strike-off applications under the Limited Liability Partnership Act, 2008. C-PACE operates across India, overseeing all applications related to the striking off of LLPs. It specifically processes applications submitted through E-form 24, ensuring a streamlined and centralized approach to dissolving non-operational LLPs.

As the sole authority for handling LLP strike-off processes, C-PACE enhances efficiency by providing a structured mechanism for LLPs seeking voluntary closure. This initiative simplifies regulatory compliance and accelerates the exit process for businesses that are no longer operational.

Voluntary Strike Off an LLP

An LLP that is no longer operational can voluntarily apply for LLP closure online by filing an application to the RoC through Form 24. Before filing, the LLP must ensure that it has settled all outstanding liabilities and has not been engaged in any business operations for at least one financial year.

For voluntary closure, the following conditions must be met:

• The LLP must have no outstanding liabilities.
• All necessary filings such as financial statements and annual returns must be up to date.
• Approval of all partners must be obtained.

Once the LLP applies for closure, the RoC will verify the documents and issue a public notice. If no objections are raised within 30 days, the LLP will be struck off the register. If an LLP has not conducted any business activities for two consecutive financial years and has not applied for dormant status, the RoC can initiate the strike-off process on its own. The RoC first issues a notice and provides an opportunity to respond. If no valid response is received, the RoC proceeds with the closure of LLP and publishes a notice in the Official Gazette.

Benefits of Striking off an LLP

Striking off an LLP (Limited Liability Partnership) offers several benefits to the partners and the entity, making it an attractive option for LLPs that are no longer conducting business or fulfilling their operational objectives. Here are six detailed benefits of striking off an LLP:

Reduction in Compliance Burden: One of the major benefits of striking off an LLP is the reduction in ongoing compliance requirements. Once an LLP is dissolved, it is no longer required to file annual returns, maintain statutory records, or comply with other filing obligations that are typically required for operational LLPs. This includes filing Form 8 and Form 11 annually, maintaining the statutory registers, and adhering to other regulatory requirements. For LLPs that are not conducting business, this can significantly reduce the administrative burden on the partners, saving both time and resources.

Elimination of Financial Liabilities: Striking off an LLP ensures that the entity is no longer liable for any outstanding debts or financial obligations. By completing the strike-off process properly, the LLP is effectively closed, and the partners are not liable for any future claims related to its business activities, provided all liabilities have been settled beforehand. This provides peace of mind for the partners, as they are no longer exposed to the risk of accumulating financial liabilities or penalties related to an inactive business.

Cost Savings: Maintaining an LLP that is no longer active can incur unnecessary costs, such as filing fees, audit costs, accounting fees, and penalties for non-compliance. By striking off the LLP, partners can eliminate these recurring expenses, which can add up over time. This is particularly beneficial for businesses that have ceased operations but still incur maintenance costs simply by being registered as an active entity.

Improved Business Reputation: If an LLP continues to exist without conducting any business, it may create a negative perception among potential investors, creditors, or business partners. The presence of an inactive LLP on official records could give the impression of a non-serious entity. By striking off the LLP, partners can remove any lingering concerns about the company's status, which can help improve their business reputation and allow them to focus on other ventures without any negative associations with the dormant LLP.

Legal and Regulatory Clarity: Striking off an LLP ensures legal clarity by formally ending the existence of the entity. This clears any ambiguity regarding the LLP’s legal standing, especially if there are potential claims or disputes that could arise in the future. Once the strike-off process is complete, the LLP ceases to exist as a legal entity, providing clear demarcation between its past operations and the current status of its partners, thus ensuring that no further legal issues can be raised.

Ease of Reinvestment in Other Ventures: For entrepreneurs or business owners who are involved in multiple ventures, striking off an LLP provides an opportunity to free up time and resources to focus on new business opportunities. Without the distractions of managing a dormant LLP, partners can reinvest their energies and capital into more promising or profitable ventures. The closure allows them to reallocate resources effectively, making it easier to start fresh and pursue new business ideas without the burden of maintaining an inactive entity.

Eligibility Criteria for Strike off an LLP

To close or strike off an LLP, certain eligibility criteria need to be met. One of the key conditions is that the LLP must not have carried on any business since its incorporation or for a period of one year or more. If the LLP has been inactive for a significant amount of time and has not engaged in any business activities, it becomes eligible for closure. This period of inactivity is an essential factor, as an active business or ongoing operations would prevent the strike-off process.

Additionally, the LLP must have filed all overdue returns, specifically the annual returns in Form 8 and Form 11, up to the end of the financial year in which the LLP ceased to carry on its business. These forms are necessary filings with the Registrar of Companies (RoC), and they help in maintaining compliance with the statutory requirements. By filing these overdue returns, the LLP ensures that it has fulfilled all its obligations under the Limited Liability Partnership Act before proceeding with the closure process.

Another important criterion is that all bank accounts associated with the LLP must have been closed. The closure of these accounts is essential to ensure that there are no pending financial transactions or balances left, which could complicate the strike-off process. The LLP must confirm that there are no open or operating accounts to prevent any future claims or financial complications after the dissolution.

Furthermore, the LLP must not have any liabilities or payments due to creditors. This means that all debts, loans, payments, and obligations to third parties must be fully settled before initiating the closure. If there are any outstanding dues or unresolved financial matters with creditors, the LLP cannot be closed until these obligations are cleared. This ensures that there will be no future claims against the LLP after it has been struck off from the register.

Finally, the LLP must have filed its Income Tax return for the last financial year. Even though the LLP may have been inactive, it is still required to file a return under the Income Tax Act to confirm that there are no pending tax obligations. Filing the last return ensures that the LLP is in compliance with tax regulations and has no outstanding dues to the tax authorities before proceeding with the closure.

To be eligible for closure, an LLP must be inactive for a specified period, have filed all overdue returns, closed its bank accounts, cleared any liabilities, and filed the necessary Income Tax return for the last financial year. Meeting these conditions ensures that the LLP is legally compliant and free from any financial or legal obligations before being struck off from the register.

Documents Required for LLP Closure or Strike Off an LLP

To close an LLP (Limited Liability Partnership), several documents are required to ensure that the process is compliant with the legal and regulatory requirements. These documents help in verifying that the LLP has no pending obligations or liabilities, and they serve as proof that all necessary steps have been taken for its dissolution. Here's a detailed explanation of each required document:

Indemnity Bond Towards Any Liability: This bond is a legal document where the LLP or its partners agree to bear any liabilities that may arise even after the name of the LLP has been struck off. In case any unresolved obligations or claims surface after the closure, the indemnity bond ensures that the partners take responsibility. This bond protects the government and authorities from any legal claims post-dissolution.

Statement of Account Certified by a Chartered Accountant (CA): A certified statement of accounts is required to demonstrate the financial position of the LLP. The statement should include details about assets, liabilities, income, and expenses. A Chartered Accountant or the auditor of the LLP is responsible for certifying the accuracy of the statement. This document is vital to confirm that there are no outstanding financial matters before the LLP can be closed.

Board Resolution Authorizing the Filing: This resolution is passed by the partners or the governing body of the LLP. It formally authorizes the filing of the necessary forms with the Registrar of Companies (ROC) for the closure of the LLP. It serves as an official record showing that the partners are in agreement with the decision to dissolve the entity and that the designated persons have been granted the authority to submit the closure application.

LLP Agreement (If Any): The LLP agreement is a fundamental document outlining the terms and conditions of the LLP's operation, including the rights, duties, and obligations of the partners. To close the LLP, a copy of the original LLP agreement is required, along with any amendments that may have occurred during the LLP's existence. If there were specific clauses related to dissolution or termination, those clauses must be referenced to ensure that the closure process aligns with the agreement. This document ensures that the partners' mutual consent is in place for the dissolution of the LLP and that the exit procedure follows the agreed terms.

Other Documents as Required by the ROC: Depending on the specifics of the LLP and the jurisdiction, additional documents may be required by the concerned Registrar of Companies (ROC). These can include various forms, affidavits, or any clarifications necessary for the closure process. The ROC may also request specific supporting documents based on the LLP's activities or the region in which it is registered.

Procedure for Voluntary Strike Off of an LLP

To successfully close an LLP (Limited Liability Partnership), there are several key steps that need to be followed meticulously to ensure compliance with legal requirements. Below is a detailed explanation of each step involved:

Passing of Resolution: The first step towards closing an LLP is the formal decision to dissolve the entity. This decision is made through a board resolution, which must be passed by the designated partners of the LLP. The resolution should clearly state the intention to close the LLP and authorize the designated partners to proceed with the necessary formalities. The resolution serves as an official record of the partners’ agreement to dissolve the LLP and is a mandatory step to initiate the closure process. It is vital that the resolution is drafted carefully and documented appropriately.

Clearing Liabilities: Before an LLP can be closed, it is essential that all outstanding liabilities are settled. This includes clearing any dues such as loans, taxes, vendor payments, employee wages, and any other financial obligations the LLP may have incurred during its operation. If there are any liabilities or unresolved claims, these must be addressed and paid off to ensure that there are no legal complications after the dissolution. This step is crucial because the LLP cannot be closed if there are pending liabilities or debts, as it may affect the partners’ personal assets or lead to legal disputes in the future.

Filing Form 24: Once the resolution is passed and liabilities cleared, the designated partners must file Form 24 with the Registrar of Companies (RoC). Form 24 is a formal application requesting the closure of the LLP and is accompanied by all necessary documentation such as the indemnity bond, statement of accounts, board resolution, and other required forms. Filing Form 24 is a critical legal step in the closure process, and it ensures that the RoC is notified of the intention to strike off the LLP from the official register. The designated partners must ensure that all required documents are attached to avoid delays or rejections.

Public Notice and Objections: After Form 24 is filed, the RoC will issue a public notice inviting objections from any interested parties or stakeholders regarding the proposed dissolution of the LLP. The notice is typically published on the RoC’s website, and stakeholders are given a period (usually 30 days) to raise any objections. If no objections are received during this period, the process moves forward. However, if objections are raised, the RoC will review them and may delay the strike-off process until the issues are resolved. This public notice ensures transparency and allows stakeholders to voice any concerns regarding the closure of the LLP.

Final Strike-Off Notification: If no objections are raised within the 30-day period, the RoC will issue a final dissolution notice. This notice officially confirms the closure of the LLP and its removal from the register of companies. Once this notification is issued, the LLP ceases to exist legally. It is important to note that after the LLP is struck off, it is treated as though it was never incorporated, and the partners are no longer responsible for the LLP's liabilities, provided they followed the proper procedure and cleared all dues prior to dissolution.

The prescribed LLP closure fees for filing Form 24 is Rs. 1000.

Consequences of Non-Striking Off LLP

A dormant or non-functioning LLP that fails to comply with statutory requirements can face severe legal issues. The LLP's officers, including directors and partners, may be subject to substantial fines, penalties, and disqualification from forming new LLPs. To mitigate these risks and avoid potential future liabilities, formally dissolve an inactive LLP. This proactive approach can safeguard the personal and financial interests of the involved parties. There are instances where a Limited Liability Partnership (LLP) is no longer required to operate, and its partners decide to close it down. The legal process for formally shutting down an LLP is known as the closure of a Limited Liability Partnership or Strike Off LLP. Under Indian law, an LLP can either voluntarily apply for closure or be struck off by the Registrar of Companies (RoC). This process ensures that the LLP is legally removed from government records and does not have any further compliance obligations. If an LLP is not operational and is looking for a fast-track closure, it can follow the strike-off process under the Limited Liability Partnership Act, 2008.

MCA Notification on Limited Liability Partnership (Amendment) Rules, 2024

On August 5, 2024, the Ministry of Corporate Affairs (MCA) issued an important notification that brought key amendments to the Limited Liability Partnership (LLP) Rules, 2009. These changes aim to simplify and speed up the process of striking off the names of defunct LLPs from the official register. A major shift in the revised rules is the establishment of the Centre for Processing Accelerated Corporate Exit (C-PACE), which will now serve as an additional authority alongside the Registrar of Companies (RoC) to handle applications related to the strike-off process or Form 24 submissions. By adding C-PACE to the procedure, the government intends to streamline the handling of these applications, ensuring a more efficient and prompt resolution for businesses looking to close down. This update is included in Chapter XIV of the LLP Rules, which specifically deals with the process of removing the names of inactive LLPs. The new set of rules, officially known as the Limited Liability Partnership (Amendment) Rules, 2024, is set to come into effect on August 27, 2024, and represents a significant step towards improving the administrative process for LLP closures. This change is expected to make the process more effective and user-friendly, ultimately benefiting entrepreneurs and businesses seeking a faster exit.

Download the MCA Notification on Limited Liability Partnership (Amendment) Rules, 2024