Winding Up of an LLP in India – Complete Guide

Definition:
Winding up of an LLP is the process of closing down the LLP, settling its liabilities, distributing any surplus assets among partners, and removing it from the Ministry of Corporate Affairs (MCA) registry.

It is governed by the Limited Liability Partnership Act, 2008, specifically Sections 67–74, and the LLP Rules, 2009.

1. Legal Provisions

2. Types of Winding Up

3. Grounds for Winding Up

Voluntary Winding Up

• LLP agreement provides conditions for dissolution

• LLP decides partners no longer wish to continue business

• LLP is solvent (able to pay debts within 12 months)

Tribunal / Compulsory Winding Up (Section 69)

NCLT may order winding up if:

• LLP is unable to pay its debts

• LLP acts against public interest

• LLP exceeded its lawful duration

• Special resolution of partners for winding up

• Default in filing statutory documents or tax liabilities

4. Procedure for Voluntary Winding Up of LLP

Step 1: Partner Resolution

• Partners pass a resolution to dissolve the LLP

• LLP agreement may require unanimous or majority approval

• Board / designated partners formalize the decision

Step 2: Declaration of Solvency

• Partners make a Declaration of Solvency (Form LLP-4)

• Declaration confirms:

  • LLP can pay debts in full within 12 months

  • Signed by all partners

• Filed with ROC within 30 days of decision

Step 3: Appointment of Liquidator

• Partners appoint a Liquidator (may be one of the partners or professional)

• Liquidator’s responsibilities:

  • Realize assets

  • Pay debts and liabilities

  • Distribute surplus among partners

  • File final reports with MCA

Step 4: Notice to Creditors

• Liquidator must notify all known creditors

• Notice published in Official Gazette & newspaper

• Creditors may submit claims within specified period

Step 5: Settlement of Liabilities

• Liquidator pays:

  • Secured creditors

  • Unsecured creditors

  • Statutory dues (GST, Income Tax, PF, ESIC)

• Any disputes or pending litigation are resolved

Step 6: Distribution of Surplus

• Remaining assets distributed among partners according to LLP agreement or capital contribution ratios

Step 7: Final Return & Dissolution

• Liquidator files Form LLP-4 (Final Statement) with ROC

• ROC publishes striking-off / dissolution notice in Official Gazette

• LLP ceases to exist legally

5. Procedure for Compulsory / Tribunal Winding Up of LLP

1. Petition to NCLT

   • Filed by:

     • Partners

     • Creditors

     • Registrar of LLP

   • Grounds: inability to pay debts, statutory non-compliance, public interest

2. Tribunal Hearing

   • NCLT examines solvency and liabilities

   • Orders appointment of Official Liquidator

3. Liquidation

   • Official Liquidator collects assets, pays debts, distributes remaining funds

   • Submits reports to NCLT

4. Final Dissolution

   • NCLT passes order

   • ROC removes LLP from registry

6. Documents Required

• Partners’ resolution to dissolve LLP

• Declaration of Solvency (Form LLP-4)

• List of creditors and liabilities

• Appointment letter of Liquidator

• Notices to creditors (Gazette & newspaper)

• Final accounts and liquidation report

• ROC filing receipts

7. MCA Forms & Filing

8. Costs Involved

• Liquidator Fees: Depends on LLP size and complexity

• Publication Costs: Gazette & newspaper

• Professional Fees: Legal and accounting support

• ROC Filing Fees: Nominal, based on LLP capital

Timeline:

• Members’ voluntary winding up: 3–6 months

• Tribunal winding up: 6–18 months depending on disputes or litigation

9. Treatment of Creditors & Partners

10. Tax Compliance During Winding Up

• File final Income Tax return

• Clear TDS / GST / Professional Tax / PF / ESIC dues

• Obtain No-Objection Certificate from tax authorities if required

• Liquidator ensures proper tax clearance before dissolution

11. Foreign Partners Considerations

• Repatriation of funds requires FEMA / RBI compliance

• Liquidator ensures foreign partners receive their share legally

• Cross-border disputes may involve additional legal documentation

12. Advisory Notes / Best Practices

1. Check LLP Agreement for specific dissolution clauses

2. Ensure all statutory dues are cleared before liquidation

3. Notify all creditors and settle claims

4. Maintain detailed records of assets, liabilities, and distribution

5. Update MCA registry on all forms and liquidation completion

6. Hire experienced liquidator for smooth closure

7. Foreign partners: Ensure currency repatriation and FEMA compliance

13. Penalties for Non-Compliance

• Filing false Declaration of Solvency: up to ₹1,00,000 / imprisonment under Section 74

• Non-filing of ROC forms: ₹5,000 per default

• Failure to settle debts or statutory dues: Personal liability for partners / designated partners

14. Summary / Checklist for LLP Winding Up

1. Partner resolution to dissolve LLP

2. Declaration of solvency (if voluntary)

3. Appointment of liquidator

4. Notification to creditors (Gazette & newspaper)

5. Realization of assets & settlement of debts

6. Payment of statutory dues & employee claims

7. Distribution of surplus among partners

8. Filing of final accounts & liquidation report (LLP-4)

9. Strike-off / dissolution by ROC

10. Retain all records for legal and tax compliance

Additional Information on LLP Winding Up

1. LLP Winding Up vs Private Limited Company Winding Up

Key Point: LLP winding up is less formal than company winding up, but compliance with MCA and creditors’ rights is still mandatory.

2. Role of Designated Partners

• Designated Partners are legally responsible for LLP compliance

• Must ensure:

  • Filing of Declaration of Solvency

  • Proper notification to creditors

  • Compliance with taxes, PF, ESIC, and GST

  • Filing final LLP-4 form

Advisory: Negligence by designated partners can lead to personal liability under Sections 72–74 of LLP Act.

3. Treatment of Assets

• Assets can be movable or immovable

• Assets must be realized fairly and transparently

• If LLP owns immovable property:

  • Liquidator may need stamp duty / registration compliance

  • May require valuation by professional

Tip: Keep detailed records of asset valuation and sale.

4. Employee & Statutory Dues

• All employee salaries, gratuity, PF, ESIC, leave encashment must be paid before distributing surplus

• Failure to comply may attract penalties under labor laws

• Other statutory dues:

  • GST clearance

  • TDS filing

  • Professional tax

5. Treatment of Secured and Unsecured Creditors

Advisory: For insolvent LLPs, creditors may initiate tribunal winding up if claims are not satisfied.

6. Foreign Partners & Cross-Border Considerations

• LLPs with foreign partners must comply with FEMA / RBI regulations

• Repatriation of funds must be documented and approved

• Liquidator must maintain records for cross-border settlements

7. Tribunal / Compulsory Winding Up – Additional Details

• NCLT may appoint Official Liquidator instead of partner-appointed liquidator

• NCLT may direct sale of assets by public auction

• Liquidator must submit interim & final reports to Tribunal

• Tribunal may allow settlement of disputes before dissolution

8. Tax & Compliance Advisory

• File final income tax return

• Clear GST, TDS, and other statutory dues

• Obtain tax clearance or No Objection Certificate (NOC) if required

• Maintain all liquidation records for minimum 8 years

9. Common Mistakes in LLP Winding Up

1. Not filing Declaration of Solvency (LLP-4) timely

2. Failing to notify all creditors properly

3. Distributing assets before settling statutory dues

4. Not filing final ROC forms

5. Ignoring employee dues or pending litigation

6. Foreign partner repayments not following FEMA rules

10. Timelines & Costs – Additional Notes

11. Record Keeping After Dissolution

• Retain all liquidation records for at least 8 years

• Includes:

  • Partners’ resolutions

  • Creditors’ claims

  • Asset realization & distribution details

  • MCA filings

  • Tax clearance documents

Advisory: This protects partners and liquidators in case of future disputes or audits.

12. Checklist – Exhaustive

1. Partner resolution to dissolve LLP

2. Declaration of Solvency (LLP-4)

3. Appoint liquidator

4. Notify creditors (Gazette & newspaper)

5. Realize assets and settle debts

6. Pay statutory dues & employee claims

7. Distribute surplus to partners

8. File interim & final liquidation report (LLP-4)

9. MCA filing of LLP-5 (strike-off/dissolution)

10. Retain all records for legal & tax compliance