Dissolution of LLP

Limited Liability Partnership (LLP) is a business structure that combines the flexibility of a partnership with the limited liability of a company. In India, LLPs are governed by the Limited Liability Partnership Act, 2008. When an LLP is no longer able to operate due to financial, legal, or voluntary reasons, it must go through a formal dissolution process.

Dissolution refers to the legal closure of the LLP, meaning it ceases to exist as a business entity. The dissolution process ensures that all liabilities are settled before removing the LLP from the records of the Registrar of Companies (ROC).

Modes of Dissolution of LLP:

An LLP can be dissolved in the following ways:

1. Voluntary Dissolution (Section 63 of LLP Act, 2008)

Partners may voluntarily decide to dissolve the LLP if they no longer wish to continue the business. This usually happens when:

• The LLP has no liabilities or has settled all outstanding debts.
• All partners agree to the dissolution.
• The LLP is inactive for a long time.

Procedure for Voluntary Dissolution:

1. Resolution by Partners: A majority of partners must pass a resolution to wind up the LLP.
2. Declaration of Solvency: Partners must submit a statement declaring that the LLP has no debts or can repay its debts within one year.
3. Notice to Registrar: The LLP must file Form 24 with the Registrar of Companies (ROC).
4. Public Notice and Approval: If there are no objections from creditors, the ROC may approve the dissolution.
5. Final Dissolution: After verification, the LLP is struck off from the ROC records.

2. Compulsory Dissolution by Tribunal (Section 64 of LLP Act, 2008)

An LLP may be forcefully dissolved by the National Company Law Tribunal (NCLT) under the following conditions:

• The LLP is unable to pay debts and is insolvent.
• The LLP has engaged in fraudulent or unlawful activities.
• The LLP has not filed annual returns or financial statements for five consecutive years.
• The LLP is found to be acting against the interest of sovereignty, integrity, and security of India.

Procedure for Compulsory Dissolution:

1. Petition to NCLT: A creditor, partner, ROC, or any other authorized body can file a petition.
2. Hearing and Investigation: The tribunal conducts hearings and may appoint a liquidator to oversee the process.
3. Settlement of Liabilities: The liquidator sells LLP assets and pays off creditors.
4. Final Order by NCLT: If all debts are cleared, the LLP is dissolved, and a notice is sent to the ROC.

3. Striking Off an LLP (Section 75 of LLP Act, 2008)

If an LLP has not commenced business or has been inactive for two years, it can apply for striking off its name from the ROC records.

Procedure for Striking Off:

1. Application in Form 24: The LLP submits Form 24 along with:
   • Statement of accounts showing zero liabilities.
   • An affidavit from designated partners confirming closure.
2. Publication of Notice: The ROC publishes a notice allowing objections from creditors or third parties.
3. Final Removal: If there are no objections, the LLP is struck off from the register.

Dissolution Due to Insolvency:

If an LLP cannot pay its debts, it must follow an insolvency resolution process under the Insolvency and Bankruptcy Code (IBC), 2016. In this case:

• A resolution professional (RP) is appointed to assess assets and liabilities.
• Creditors may agree on a repayment plan or liquidation of assets.
• If no resolution is reached, the LLP is dissolved.

Effects of Dissolution:

• The LLP ceases to exist legally.
• Partners lose their rights and liabilities related to the LLP.
• If dissolution is due to fraud, partners may still be liable for legal action.
• Any remaining assets after debt repayment are distributed among partners.