Dissolution of LLP
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Meaning of Winding Up and Dissolution of LLP
Winding up is the process where the LLP’s assets are liquidated, and the liabilities are settled. Any remaining surplus is distributed among the partners according to the LLP Agreement. The winding-up process can be initiated either voluntarily by the partners or compulsorily by a Tribunal.
Modes of Winding Up of LLP
The winding up of an LLP can occur through the following methods:
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Voluntary Winding Up: This occurs when the partners mutually decide to wind up the LLP. The LLP must pass a resolution for winding up and file it with the Registrar of Companies within 30 days. From the date of the resolution, the voluntary winding up is deemed to have commenced. This can further be classified as:
- Winding up by Members: Partners may decide to dissolve the LLP based on mutual agreement or any other grounds specified in the LLP Agreement.
- Winding up by Creditors: If the LLP is unable to meet its liabilities, it may convene a meeting with its creditors to consider the winding-up proposal.
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Compulsory Winding Up: A Tribunal can order the winding up of an LLP for reasons such as:
- The LLP's inability to pay its debts.
- The LLP has acted against the interests of the sovereignty and integrity of India.
- The LLP has failed to file its financial statements or annual returns for five consecutive years.
- The Tribunal deems it just and equitable for the LLP to be wound up.
Steps Involved in the Dissolution Process
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Declaration of Solvency: The partners of the LLP must declare that the LLP is solvent and capable of paying its debts. This declaration must be supported by an affidavit and financial statements.
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Passing of Resolution: The partners must pass a resolution for winding up the LLP and appoint an insolvency professional to act as the liquidator.
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Approval by Creditors: If the LLP owes any debts, the resolution for winding up must be approved by creditors representing two-thirds of the total debt within seven days of passing the resolution.
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Commencement of Liquidation: Once the resolution is passed and approved by the creditors, the liquidation process begins, and the LLP ceases to carry on its business except for the purpose of winding up.
Conclusion
The dissolution of an LLP is a systematic process governed by specific legal requirements aimed at ensuring that all obligations are met before the LLP ceases to exist. Whether through voluntary or compulsory winding up, the dissolution process ensures that all debts are paid, and any remaining assets are distributed among the partners, marking the formal end of the LLP’s existence.