A Limited Liability Partnership (LLP) is a popular business structure because it combines the flexibility of a partnership with limited liability protection. However, when an LLP is no longer carrying on business, keeping it registered without completing the required compliances can lead to unnecessary penalties and regulatory issues.
If you have an inactive LLP and do not plan to continue the business, it is better to formally close it rather than simply stop filing annual returns.
The Ministry of Corporate Affairs (MCA) provides a process for striking off an LLP’s name from the Register through LLP Form 24 under Rule 37 of the Limited Liability Partnership Rules, 2009. An LLP can generally apply for strike-off if it has not carried on business or operations for at least one year, subject to the prescribed conditions.
This guide explains the LLP closure process, important documents, eligibility conditions and common mistakes to avoid.
What is LLP Closure?
LLP closure means legally removing the name of an LLP from the Register maintained by the Registrar of Companies (ROC).
Simply stopping business activities does not automatically close an LLP. Even if an LLP is inactive, it may continue to have statutory filing obligations until its name is formally struck off.
For an LLP that has stopped business and meets the eligibility conditions, strike-off under Section 75 of the LLP Act, 2008 read with Rule 37 of the LLP Rules, 2009 is generally the relevant route.
When Can an LLP Apply for Closure?
An LLP can voluntarily apply for strike-off when it has not carried on any business or operation for a period of one year or more.
The application must also be made with the consent of all the partners.
Before applying for closure, the LLP should ensure that:
- Business operations have been discontinued.
- There are no outstanding liabilities.
- All partners have agreed to the closure.
- Pending MCA filings have been completed up to the required period.
- The LLP has no assets and liabilities at the time of application.
- Applicable tax and other statutory matters have been properly dealt with.
- Bank accounts have been closed, where applicable.
If the LLP still has significant assets, liabilities or ongoing business matters, a simple strike-off may not be appropriate and another winding-up route may need to be considered.
LLP Closure Through Form 24
The principal form for voluntary strike-off is LLP Form 24.
The MCA’s Form 24 instruction kit states that an LLP may apply for striking off its name if it is not carrying on business or operations for one year or more, with the consent of all partners.
Before filing Form 24, the LLP is required to complete certain pending compliances. The rules specifically require overdue Form 8 and Form 11 filings to be completed up to the end of the financial year in which the LLP ceased business or commercial operations.
Therefore, an LLP should not assume that it can directly file Form 24 without clearing its previous statutory filings.
Step-by-Step LLP Closure Process
Step 1: Stop Business Operations
The LLP should first cease its business or commercial operations.
The date of cessation should be properly identified because it is relevant for determining eligibility for strike-off.
Step 2: Settle Outstanding Liabilities
All outstanding liabilities should be settled before applying for closure.
This may include:
- Loans and borrowings
- Vendor dues
- Employee-related dues
- Government dues
- GST liabilities
- Income-tax liabilities
- Other contractual obligations
An LLP seeking strike-off should generally have nil assets and nil liabilities at the relevant stage.
Step 3: Complete Pending MCA Filings
Check the LLP’s MCA master data and filing history.
Pending Form 8 (Statement of Account & Solvency) and Form 11 (Annual Return) should be filed as required before Form 24.
This step is important because delayed filings can result in additional filing fees.
Step 4: Close the LLP’s Bank Account
If the LLP has a bank account, it should generally be closed before the strike-off application.
The bank closure proof or statement may be required as part of the supporting documentation. The rules specifically refer to evidence of bank account closure where an LLP had opened a bank account.
Step 5: Prepare the Statement of Accounts
A Statement of Account showing nil assets and nil liabilities is required for the strike-off application.
The statement is required to be certified by a Chartered Accountant in practice and should be prepared within the prescribed period before filing Form 24.
Step 6: Prepare Affidavit and Indemnity
The designated partners are required to provide the prescribed declarations/affidavits confirming matters such as cessation of business, absence of liabilities and other relevant facts.
They also undertake responsibility for liabilities that may arise even after the LLP is struck off.
Step 7: File LLP Form 24
After completing the above requirements, Form 24 can be filed with the MCA along with the prescribed attachments.
The application requires information such as the LLPIN, reason for closure, date of cessation of business and details regarding income-tax filings.
Step 8: ROC/MCA Processing
After submission, the application is examined by the authorities.
If the requirements are satisfied, the LLP’s name is struck off from the Register and its status is changed to “Strike off.”
Documents Required for LLP Closure
Common documents required for Form 24 may include:
- Consent/authority signed by all partners.
- Latest Income Tax Return acknowledgement, wherever applicable.
- Statement of Accounts showing nil assets and liabilities.
- Affidavit by the designated partners.
- Indemnity-related undertaking as prescribed.
- Bank account closure proof, wherever applicable.
- Copy of LLP Agreement and amendments, where required.
- Other documents as applicable to the particular LLP.
The exact documentation should be checked against the current MCA requirements before filing.
How to Avoid Penalties During LLP Closure
One of the biggest mistakes is assuming that an inactive LLP has no compliance obligations.
To reduce the risk of additional fees and complications:
- Do not leave Form 8 and Form 11 pending.
- Maintain proper books and records until cessation.
- Settle all outstanding statutory and commercial liabilities.
- Close unnecessary bank accounts.
- Deal with GST and income-tax registrations/returns as applicable.
- Keep proof of cessation of business.
- Ensure all partners’ consent is properly documented.
- Check the MCA master data before filing Form 24.
- Use valid DSCs and ensure the designated partners’ details are updated.
The MCA’s current Form 24 instructions also identify certain situations that can prevent filing, including open/unsatisfied charges, pending forms, pending master-data correction requests and certain disputes or proceedings.
What Happens After Filing Form 24?
Filing Form 24 does not mean that the LLP is immediately closed.
The application is processed by the relevant authority. Once approved, the LLP’s name is struck off from the Register.
The Ministry of Corporate Affairs has also highlighted the role of C-PACE in accelerating voluntary closure processing for companies and LLPs, with the objective of making voluntary exit faster and more efficient.
However, partners should retain important records and supporting documents even after closure because liabilities or claims arising from the LLP may still have legal consequences.
Common Mistakes to Avoid
Ignoring annual filings
An LLP does not become automatically exempt from filing because it has stopped business.
Filing Form 24 without clearing old filings
Pending Form 8 and Form 11 compliances can create problems during the strike-off process.
Not closing the bank account
If the LLP has an active bank account, it may not satisfy the required closure conditions.
Having outstanding liabilities
Strike-off is not a method for simply avoiding creditors or statutory dues.
Incorrect cessation date
The date from which the LLP stopped its revenue-generating business should be correctly determined and consistently reported.
Missing tax compliances
GST, income-tax and other applicable registrations and filings should be reviewed before closing the LLP.
FAQs on LLP Closure
Q1. Can an inactive LLP be closed?
Yes. An LLP that has not carried on business or operations for at least one year may generally apply for voluntary strike-off through Form 24, subject to the prescribed conditions.
Q2. Which form is used for LLP strike-off?
LLP Form 24 is used for applying to the Registrar for striking off the LLP’s name.
Q3. Is the consent of all partners required?
Yes. The voluntary strike-off application is required to be made with the consent of all partners.
Q4. Can an LLP with liabilities apply for strike-off?
Generally, an LLP seeking strike-off must satisfy the prescribed conditions, including having nil assets and liabilities. Outstanding liabilities should therefore be settled before applying.
Q5. Do pending Form 8 and Form 11 need to be filed?
Yes. The rules require overdue Form 8 and Form 11 filings up to the end of the financial year in which the LLP ceased business to be completed before filing Form 24.
Q6. Is closing an LLP the same as stopping business?
No. Stopping business does not automatically remove the LLP from the MCA register. A formal closure/strike-off process is required.
Q7. Can an LLP be closed if it never started business?
Yes. An LLP that has not commenced business may also be eligible for strike-off, subject to the applicable conditions and documentation.
Q8. Why should an LLP be formally closed?
Formal closure helps prevent continuing statutory compliance obligations, additional filing fees and future regulatory complications associated with keeping an inactive LLP on record.
Conclusion
Closing an LLP properly is much better than simply abandoning it. If your LLP is no longer carrying on business, the first step should be to check its MCA filing status, tax compliances, liabilities, bank account and eligibility for Form 24 strike-off.
By completing the pending compliances, settling liabilities, preparing the required documents and filing Form 24 correctly, partners can complete the closure process in a more organised manner and avoid unnecessary penalties.
If you are planning to close an inactive LLP, taking professional assistance can help ensure that the MCA, tax and documentation requirements are completed correctly before submitting the strike-off application.
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