WINDING UP OF LLP

Winding up of a Limited Liability Partnership (LLP) is the legal process of closing the business, settling its debts, liquidating its assets, and distributing the remaining amount to partners. Once winding up is complete, the LLP ceases to exist as a legal entity. It can be done voluntarily by the partners or compulsorily by the Tribunal in cases of non-compliance, insolvency, or inactivity.

Winding up ensures that the closure of the LLP is lawful and all financial, tax, and regulatory obligations are properly settled.

TYPES OF WINDING UP OF LLP

There are two main ways an LLP can be wound up:

1. Voluntary Winding Up

Partners of the LLP themselves decide to close down the business. It is usually done when the LLP has no debts or can pay them fully, and partners mutually agree to stop operations.

Conditions:

• The LLP is solvent and can clear all debts.
• Declaration of solvency (DOS) must be filed by partners.
• Creditors (if any) must approve the winding-up decision.
• Liquidator is appointed to handle closure and asset disposal.

Steps:

1. Pass a resolution for winding up.
2. File a declaration of solvency verified by a majority of designated partners.
3. Get approval from creditors within 30 days.
4. Appoint a liquidator and file intimation with Registrar and IBBI.
5. Realise and distribute assets.
6. File final report and apply for dissolution.
7. Registrar issues a notice confirming dissolution of the LLP.

2. Compulsory Winding Up by Tribunal

The National Company Law Tribunal (NCLT) can order the winding up of an LLP for reasons like:

• The LLP is unable to pay its debts.
• The LLP has less than two partners for more than six months.
• The LLP fails to file financial statements or annual returns for five consecutive years.
• The LLP acts against the interest of the sovereignty or integrity of India.
• It is just and equitable to wind up the LLP.

Steps:

1. A petition is filed by the LLP, its partners, creditors, or the Registrar to the NCLT.
2. Tribunal examines the petition and may issue a winding-up order.
3. Appointment of a liquidator by the Tribunal.
4. Liquidator settles debts, sells assets, and distributes surplus to partners.
5. Liquidator submits a final report to Tribunal.
6. Tribunal passes an order of dissolution.
7. Registrar updates the records and publishes the dissolution notice.

WINDING UP UNDER INSOLVENCY AND BANKRUPTCY CODE (IBC), 2016

If an LLP is insolvent (unable to pay debts), it can be liquidated under the Insolvency and Bankruptcy Code (IBC), 2016.

• Petition is filed before the NCLT.
• A moratorium is declared (freezing all legal proceedings).
• An Insolvency Resolution Professional (IRP) is appointed.
• A Committee of Creditors (CoC) decides on a resolution or liquidation plan.
• If liquidation is ordered, assets are sold and proceeds distributed as per priority.
• The LLP is dissolved after completion.

EFFECTS OF WINDING UP

• The LLP must stop business operations except those necessary for closure.
• Legal existence continues until dissolution is approved.
• After dissolution, the LLP name is removed from ROC records and cannot operate further.

BENEFITS OF PROPER LLP WINDING UP

• Avoids penalties for non-compliance.
• Protects partners from future liabilities.
• Ensures legal and transparent closure.
• Maintains good standing with government authorities.
• Helps partners focus on new ventures without legal baggage.