A Limited Liability Partnership or LLP is an alternative corporate business form which offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal entity, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership.
Limited partners have no personal liability beyond their investment in the partnership interest. Limited partners cannot participate in the general management and daily operations of the partnership business without being considered general partners in the eyes of the law.
Disadvantages of Limited Liability Partnership:
Most LLPs need to produce audited accounts to submit to Companies House. Public disclosure of an LLP’s accounts means that its financial circumstances and trading position cannot be kept private.
All members of an LLP can be held responsible for any one member’s negligence if they are operating within the scope of their authority in the business.
An LLP can be structured in such a way that one partner has more rights than another. So it isn’t a one vote per share system. So, some lesser partners may feel compromised if higher shareholders choose to move the business in a direction that affects their interests.
An LLP’s compliances are minimal, but if you don’t complete them, you could end up paying more in fines than you would with a private limited company. These fines can escalate to Rs. 5 lakh for a single year.
Formation of an LLP is more complex and can be more costly than for an ordinary partnership.
The costs of administering an LLP are typically higher than those for an ordinary partnership due to the additional accounting and reporting requirement.
Another disadvantage is that individual partners are not obligated to consult with other participants in certain business agreements. For the protection of the overall integrity of the company, you should create a partnership agreement that specifically outlines what each limited partner can and cannot do when making business decisions.
Procedure of Closing Limited Liability Partnership:
Step 1: Cease Commercial Activity
LLP Form 24 can be filed only by LLPs that never commenced business or have ceased commercial activity. Hence, if the LLP is operational and the promoters wish to close the LLP, the LLP must first cease all commercial activity.
Step 2: Close Bank Account(s)
LLP Form 24 can be filed only by those LLP that have no creditors and no open bank account. Hence, prior to filing LLP Form 24, any bank account opened in the name of the LLP must be closed and a letter evidencing closure of the bank account in the name of the LLP must be obtained from the Bank.
Stage 3: Prepare Affidavits and Declaration
All the Designated Partners of the LLP should initially execute a affidavit, either mutually or severally, that the Limited Liability Partnership stopped to carry on business movement from (Date) or has not started business.
Further, the LLP Partners should likewise announce that the LLP has no liabilities and repay any risk that may emerge even subsequent to striking off its name from the Register. The obligation of the Partners would not be quenched even after conclusion of a LLP while utilizing Form LLP 24.
Stage 4: Prepare Documents
Alongside Form LLP 24 the annual government form of the LLP and LLP deed must be encased. In the event that the LLP has not documented any annual assessment form and it has not continued any business action, at that point it isn't required. Else, a duplicate of the affirmation of the most recent Income-assessment form recorded must be joined with the application for shutting the LLP.
Stage 5: File Any Pending Documents
After consolidation of a LLP, the LLP understanding must be recorded with the MCA inside 30 days of enrollment. In the event that this consistence was missed and LLP understanding was not recorded, at that point the underlying LLP understanding, whenever went into and not documented, alongside any alterations must be documented.
Likewise, any late returns in Form 8 and Form 11 up to the finish of the monetary year where the restricted obligation association stopped to carry on its business or business tasks must be documented before recording LLP Form 24. The date of suspension of business activity is the date from which the Limited Liability Partnership stopped to carry on its income creating business and the exchanges, for example, receipt of cash from account holders or installment of cash to leasers, ensuing to such discontinuance won't frame some portion of income producing business.
Stage 6: Obtain Chartered Accountant Certificate
When every one of the records for documenting of LLP Form 24 is readied, an announcement of records uncovering NIL resources and NIL liabilities, that is confirmed by a rehearsing Chartered Accountant up to a date not sooner than thirty days of the date of recording of Form 24 must be acquired.
Stage 7: File LLP Form 24
The previously mentioned reports alongside LLP Form 24 (Download LLP Form 24) can be then recorded with the MCA to strike off name of LLP. On preparing the application, whenever found adequate, the concerned Registrar of Companies would make a notice be distributed on the MCA site declaring the striking off of the LLP.
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