Dissolution refers to the formal dissolution of a partnership or official body. This is the process of dissolving or being dissolved, which is the process of disintegrating. However, dissolution has multiple meanings in law.
In LLPs, dissolution is the process of liquidation that ends their existence. Assets and property of the concerned entity are redistributed.
Dissolution types of LLPs
LLPs can be wound up in the following ways:
- Deeming an LLP defunct
- Continuity of business.
A. Involuntary dissolution
Limited Liability Partnerships may be wound up and closed by the partners between themselves under this arrangement.
The resolution must be approved by 3/4th of the partners. A copy of the Resolution needs to be filed with the Registrar in Form 1 within 30 days of it being passed, and a copy needs to be given to the person responsible for winding up the company.
B. Compulsory Winding up
In compulsory winding up, the tribunal orders the dissolution and winding up of an LLP for the following reasons:
◦ When an LLP decides to be wound up by the Tribunal;
◦ When the number of partners of an LLP falls below two for a period exceeding six months;
◦ When an LLP is unable to pay its debts;
◦ When an LLP acts against the sovereignty and integrity of India, the security of the State, or public order;
◦ When an LLP fails to file its Statement of Account and Solvency or annual return for five consecutive financial years with the Registrar; or
◦ When a Tribunal finds that it is just and equitable for an LLP to be wound up.
C. Winding up with Creditors
- As part of the winding up process, the majority of partners must declare that they have no outstanding debts or will pay their debts within an assured timeframe, as fixed by the partners, but not longer than a year from the date the resolution was passed.
- When the Resolution for Winding Up is passed and the creditors have consented, the LLP should publish an advertisement regarding the resolution of winding up within 14 days in a newspaper circulating in the area where the LLP’s principal place or registered office is located.
Dissolution can be divided into three parts:-
A. Resolutions and affidavits
To dissolve voluntarily, partners and creditors must pass a resolution. Afterward, all partners must sign an affidavit and bond and file the form for striking off an LLP with the MCA.
B. Appointment of Liquidator and Liquidation report (not applicable for defunct LLP)
Liquidators must be appointed by the LLP within 30 days of passing the resolution in consultation with any creditors. Liquidators perform all necessary functions & duties and develop a liquidation report, affecting dissolution, that outlines how winding up will take place. Liquidation & valuation report along with this report will be sent to the registrar.
C. Dissolution by Tribunal
An application for dissolution will be filed with the reports mentioned above. In the event that the tribunal approves the winding up process, it will pass the necessary order dissolving the LLP. Such an order will then be filed with the registrar by the liquidator.
Last but not least, if the registrar feels it appropriate, the registrar will publish a notice in its Official Gazette stating the dissolution of the LLP. In the absence of objections within 30 days, the registrar will dissolve or strike off an LLP.
The dissolution of an LLP requires ample documents to be filed and processes to be completed. With the help of Vakilsearch, we can make all your processes stress-free, smooth & prompt.