Provision regarding strike off of LLP
The penalty for a LLP’s failure with respect to filing any statutory tax return is quite severe; hence it is advisable for dormant companies to shut down their business. With this form, they will be able to avoid penalties, and won’t be required to file a variety of LLP documents or Revenue Tax returns each year to remain in compliance.
It is a wise choice for entrepreneurs to shut down LLPs that are inactive or have defaulted and accrued penalties. The clause relating to the strike-off of LLP was updated by the Ministry of Corporate Affairs (MCA).
Ministry of Corporate Affairs released an announcement on 16 May 2017 that provided an exemption to the Limited Liability Partnership (LLP). It provided that the LLPs that have not operated their business and haven’t filed any return with the registrar concerned and are seeking to dissolve the LLP will have to submit overdue returns for the time in which the LLP actually operated.
This means that LLP’s do not have to make returns for the time that the business was not in operation. But, a statement must be made to the partners designated prior to the end or demise of the company.
This article will help answer many questions and concerns regarding the notice issued by the MCA on 16 May 2017 regarding the termination of LLP. This article provides a brief overview of the various provision regarding strike off of LLP.
Meaning of LLP
Limited Liability Partnership (LLP) It is a different type of corporate entity that offers the advantages of limited liability for the members. It is a body corporate, and just like an organization or corporation but it is also an entity that is legal in its own right. An LLC is able to enter into an agreement and acquire real estate under its own name.
The many advantages of LLPs are that it is simple to establish unlike a corporation where the process can be time-consuming as the partners bear a limited liability, ownership is transferable easily, and there isn’t a mandatory requirement for an audit. Another advantage to LLP can be that its amount of taxation for LLP is significantly lower than for a business.
Is it required for a business to file annual reports with the ROC before making a request to have an LLP struck off?
The lawful provision regarding strike off of LLP are provided in paragraph (b) under the sub-rule of regulation 37 in the LLP Rules of 2008. There isn’t any provision for an exemption to file the electronic form (LLP-8 as well as LLP-11) for the strike-off of LLP in accordance with the rules. Each LLP must submit an annual filing before the date of strike off of LLP.
However, as per the LLP amending rules for 2017 saw a notable change. The rules amending the rules stipulate that the LLP under clause (b) in sub-rule 1 of rule 37 must submit overdue returns until the close of the financial year using Form 8 and Form 11 where the LLP has ceased carrying out commercial or business operations before filing the “strike off” form.
The LLP will submit overdue tax returns on Form 8 and form 11 until the close of the year when the LLP has ceased its commercial or business activities. So, in the terms of the amended rules, it is possible to form an opinion that an LLP that is not operational seeks to be struck off, then it should file forms 8 and 11 up to the close of the year which the LLP has ceased carrying on its business or commercial operations.
Analysis of individual cases
The provision regarding strike off of LLP is then able to proceed to strike-off pursuant to rule 37 under the LLP Rules.
If an LLP has filed the electronic forms (LLP-8 and LLP-11) to close the financial year and at the start of a new financial year, it has not conducted any business nor conducted any commercial activities in that instance the LLP could make an application to removal of LLP under the amendment rule for 2017 at the Office of an application to the Registrar of Companies without the completion of annual filing forms prior to the day it was unable to conduct business.
If an LLP has not filed electronic forms (LLP-8 as well as LLP-11) in the year since it was formed, and also if it plans to seek the option of strike-off in accordance with Rule 37, in that situation, under the new rules the provision regarding strike off of LLP must complete the annual filing until the fiscal year 2012-2013.
It is important to be aware that the late filing fee for the completion of annual filings is the amount of Rs. 100 per day until when the forms are filed.
There are two crucial elements to consider in this provision First, an LLP must not be operational or should not be operating any kind of business for a minimum of one year.
Secondly, it should be noted whether the provision regarding strike off of LLP has completed any annual forms prior to the date it ceased its commercial or business activities.
Is a business required to be required to file the Initial LLP Agreement and any modification to the LLP arrangement with the Registrar of Companies prior to making an application to the dissolution of the LLP?
The LLP rule does not provide an exclusion from filing an LLP agreement on an e-form in the Registrar of Companies. So, before making an application to the provision regarding strike off of LLP it must complete its LLP contract with the registry for companies.
The LLP must (if signed but not signed and not filed) contain a copy of the initial LLP agreement as well as any revisions to the agreement, according to the amendment requirements, if the LLP has not yet started engaging in commercial or business operations after its formation.
This means that in accordance with the amending rules the LLP is able to submit an application to the provision regarding the strike off of LLPs without filling out the electronic form (LLP-3) with the company’s registrar if the LLP has been inactive at the time of incorporation.
If you are a Limited Liability Partnership (LLP) that has started its business, but it has not filed its initial LLP agreement, then if it wishes to request a strike-off, it must submit the LLP-3 along with the original agreement according to the rule of the amendment.
If an LLP has not yet begun its business or operations after its incorporation and hasn’t filed an LLP agreement or any amendment to the LLP agreement, the LLP is, in accordance with the amendment rule of 2017 may make an application to strike off from LLP through the registrar for corporations without submission of forms.
The amendment regulations provide that the LLP must (if signed, but not signed and not filed) contain a copy of the original LLP agreement as well as any revisions to it if the LLP has not yet started engaging in commercial or business operations after its incorporation.
Original LLP agreement wishes to file a strike-off application for the agreement, it must amend its initial LLP arrangement within LLP-3 to the registrar of corporations in accordance with the amendments regulations. It is important to note about the fee for late filing for submission of annual forms is at least Rs. 100 per day until when the forms are filed.
It is crucial to determine whether this is what the LLP has filed an initial LLP agreement and if it has filed an amendment to the original LLP agreement if it has one. If the LLP is not filing any of the two contracts that were mentioned earlier, it is necessary to determine if the LLP has conducted any kind of business or operation prior to its inception.
Methods of cutting off an LLP
The Limited Liability Partnership (LLP) may choose to adopt one of the following methods to end its business:
In declaring that the LLP is insolvent
If an LLP isn’t running any business activity for one or more years or when the LLP would like to end its operations, it may apply to the registrar of corporations in order to mark the LLP as no longer in existence and take its name from the register. LLP from the registry.
By the winding into LLP
The winding-up of an LLP means that the company’s assets are sold to satisfy the obligations, and in the event of a surplus, it’s distributed to the owners. A provision regarding the strike off of LLP can be wounded up in two ways: the first is a) voluntary winding up and b) obligatory winding up.
The Strike Off procedure of LLP
In the event that an LLP has not been operating a business for an entire year or more or when the LLP would like The amendment regulations to provide that the LLP must (if signed but not signed and not filed) contain a copy of the original LLP agreement as well as any revisions to it if the LLP has not yet started engaging in commercial or business operations after its incorporation.
A form must be submitted on e-form 24, e-form 24, to the registrar of corporations to remove names of LLP together with these documents
- An account statement that identifies that there are no assets nor obligations that have been certified by a CA (Chartered accountant) in practice, and is filed with a date that is not more than 30 days after the date of filing form 24.
- An acknowledgment of the most recent income tax return,
- Copy of original LLP agreement (if it has been signed and has not yet been filed) and any amendments thereto,
- An affidavit executed by the parties designated (jointly or multiply) affirming that
- It is unclear if the LLP has not yet begun its business. Alternatively, once it started a business, it was unable to continue to operate from the date.
- The LLP is not liable and is not will not be liable for any obligation that might result from its name being taken off the registry.
- It is known that the provision regarding strike off of LLP has not opened a bank account. If it had been opened, the account was shut down since it was closed. The account has been shut with a written certificate or an official document issued by the Bank, informing that the account has been closed. Bank Account.
- It is the LLP did not file an Income Tax Return if it hasn’t conducted any business since it was founded and if it is applicable.
- The application must be in full, with the complete information of LLP and the reasons for closing,
- An official copy of the authorization to sign the application by all the co-partners.
Its name can be struck off by the Limited Liability Partnership can be deleted by the registrar, or by the LLP itself using Form-24 with the agreement of all partners.
The registrar shall ask the partners to submit representations along and copies of the pertinent documents in the period of 30 days of when the notice was sent.
When the period specified in the notice runs out and the registrar has the decision to take ensure that there aren’t any adverse representations made by LLP members or the general public, cut out the name and address of the LLP in the registry and then publish an announcement in the gazette of the official LLP.
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The option of the provision regarding strike off of LLP is a major benefit for those who own insolvent or dormant LLP. Introduction of LLP Amendment Rules, 2017 makes winding down easier. Owners are now able to revoke the LLPs which are inactive and are subject to penalties. This will make sure that owners of LLP’s are not burdened by heavy penalties.
An limited liability company (LLP) with no business activities for at least one calendar year may be shut down easily by cutting off the name of the defunct LLP.
In the event of strike offs of LLPs the only way to get renewal is to file a Written Petition in the Honourable High Court of the appropriate Jurisdiction.
According to section 248(1) in the Companies Act, a company may be barred from using its name when the Registrar has suspicion that the company has not started its operations in the first year following incorporation.
A business may file an application to the Registrar of Companies in E-Form STK-2 following the repayment of its obligations. This can be done through the adoption of an additional resolution that must be approved by 75% of its shareholders.
Azhar Ansari is a company formation specialist with 8+ years of expertise in international business. Financial planning, risk management, and other related areas.