Winding up of an LLP – Expert Guidance by Vijendra & Co

Limited Liability Partnerships (LLPs) are now the go-to form for companies looking to combine the limited liability protection of a company with the operational flexibility of a partnership. However, not all business ventures go on forever. Whether due to commercial reasons, mutual decisions of partners, or financial constraints, there may arise a need for the winding up of an LLP. At Vijendra & Co, we provide end-to-end guidance and professional support in navigating this complex legal process with clarity and compliance.

The LLP Winding Up: What is it?

The legal procedure for ending a limited liability partnership is known as an LLP winding up. This process involves settling the liabilities and distributing the remaining assets of the LLP to the partners and other stakeholders. After the winding-up procedure is finished, the LLP legally no longer exists.

This structured exit ensures that all regulatory obligations are fulfilled, creditors are paid, and there are no legal consequences for the partners after the dissolution. It is not merely a shutdown of business activities but a systematic legal closure of the business entity.

LLP Winding Up Law Governing

The Limited Liability Partnership Act of 2008 is the main piece of legislation that governs the winding up of an LLP in India. These include the 2012 Limited Liability Partnership (Winding up and Dissolution) Rules and the 2016 Insolvency and Bankruptcy Code (IBC) (in the event of insolvency). These laws provide a detailed procedure, rights, duties, and timelines involved in the winding-up process.

A Comparative Analysis of LLP Winding Up and Dissolution

While often used interchangeably, winding up of an LLP and dissolution of LLP are legally distinct terms.

Comparison Between LLP Winding Up and Dissolution of LLP

While often used interchangeably, winding up of an LLP and dissolution of LLP are legally distinct terms.

Modes of LLP Winding Up

Two methods can be used to start the winding up of an LLP:

• Liquidation that is voluntary
• Conclusion by the Tribunal

Each mode is chosen based on the circumstances leading to closure, whether it's a mutual decision or a result of financial distress.

Voluntary Liquidation

Voluntary liquidation is opted for when the LLP is solvent, and the partners mutually decide to wind up the affairs. It is a faster and more cost-effective method compared to tribunal-led winding up.

Eligibility for Voluntary Liquidation

• LLP must be debt-free or able to make full payments on its debts.
• Partners must declare solvency.
• Approval of at least 3/4th partners is required for voluntary winding up.

The process for LLP's voluntary liquidation

Several legal and procedural steps are involved in the voluntary liquidation process:

1. Statement of Solvency – A declaration confirming the LLP's solvency and ability to pay its debts must be filed by the partners.
2. Passing Resolution – A resolution for winding up must be passed with the consent of three-fourths of the partners.
3. Liquidator Appointment – To handle the process of liquidation and account settlement, a voluntary liquidator is chosen.
4. Creditors’ Consent – If the LLP has creditors, their approval for winding up and appointment of liquidator must be obtained.
5. Filing with Registrar – All declarations and resolutions have to be submitted to the LLP Registrar.
6. Liquidator’s Report – After settling the liabilities and distributing remaining assets, the liquidator files a report.
7. Dissolution – On approval of the report, the Registrar strikes off the name of LLP, and it stands dissolved.

Effect of Liquidation

• Suspension of all business activities except those necessary for winding up.
• Legal control of LLP vests with the liquidator.
• Creditors’ rights are settled in order of priority.
• When the LLP dissolves, it no longer has legal status.

LLP Winding Up by Tribunal

When an LLP fails to meet legal obligations or is unable to pay its debts, it may be subject to compulsory winding up by a Tribunal.

Reasons for Tribunal Closure

• LLP is unable of repaying its debts;
• LLP has acted against India's integrity and sovereignty.
• The Tribunal believes that winding up the LLP is fair and just because it hasn't filed any financial statements or annual returns for five years in a row.

The steps involved in a tribunal winding up an LLP are as follows:

1. Petition filing – The LLP, its partners, creditors, or the Registrar may all file a petition for winding up.
2. Admission by Tribunal – The Tribunal reviews the petition and may admit it if valid grounds exist.
3. Appointment of Official Liquidator – Once the winding-up order is passed, an official liquidator is appointed.
4. Statement of Affairs – The LLP must file a statement of affairs detailing assets, liabilities, and financial position.
5. Liquidator’s Duties – The liquidator sells assets, settles claims, and prepares a final report for the Tribunal.
6. Dissolution Order – The Tribunal issues an order of dissolution, and the Registrar removes the LLP from the records.

Procedures for LLP insolvency under the IBC, 2016

In the event of insolvency, LLPs are subject to the Insolvency and Bankruptcy Code (IBC), 2016. If the LLP is unable to pay its debts, creditors or partners can initiate a Corporate Insolvency Resolution Process (CIRP).

Key Aspects under IBC:

• Appointment of a Resolution Professional (RP) to take charge of the LLP.
• Moratorium on legal actions and recovery proceedings.
• Attempts to resolve insolvency through revival or sale.
• If resolution fails, liquidation of LLP under IBC provisions.

This route is more regulated and is typically used when the LLP is insolvent and has defaulted in its financial obligations.

CS Vijendra & Co.: Your LLP Winding Up Partner

At CS Vijendra & Co, we understand the technicalities and sensitivity involved in the winding up of an LLP. Whether it's a voluntary closure or a Tribunal-led winding up, our expertise ensures that the process is executed smoothly, in full compliance with the law, and with minimal stress for partners. With a deep understanding of the LLP Act, IBC regulations, and practical challenges, we provide a comprehensive legal and procedural roadmap for your LLP closure journey.

Whether your LLP is being voluntarily shut down or is undergoing tribunal-ordered liquidation, Vijendra & Co is equipped to support your winding-up process with precision, clarity, and legal expertise.

Let us simplify the complexities involved in the winding up of an LLP and ensure your exit strategy is legally sound and efficiently executed.