Closing a business in India, whether it is a Limited Liability Partnership (LLP) or a Company, is a structured legal process governed by the Limited Liability Partnership Act, 2008 for LLPs and the Companies Act, 2013 for companies. Before you can file for closure, your business entity must meet certain eligibility conditions to qualify for fast-track or simplified closure routes.


Eligibility Criteria for LLP Closure

Under Indian law, an LLP can be closed through two primary routes:

  1. Strike Off (by filing Form 24)
  2. Winding Up (voluntary or by tribunal)

We’ll focus mainly on the strike-off route, as it is the most common and simpler option, but we will also touch briefly on winding-up cases.


- Strike Off Under LLP Act (Form 24)

An LLP can apply for strike-off (closure) under Rule 37 of LLP Rules, 2009 using Form 24 if it meets these conditions:

a. Non-operational Status

  • The LLP has not carried on business or commercial activity since its incorporation OR
  • The LLP has ceased operations for at least one year before the strike-off application.

This means that if you never started business or you shut down over a year ago, you are eligible.

b. No Pending Liabilities

  • The LLP has no liabilities or debts (no pending loans, dues to creditors, statutory dues like tax, or employee payments).
  • Partners must provide an affidavit confirming that they have settled all dues.

C. Consent of All Partners

  • All partners must consent to the closure.
  • This includes designated partners as well as other partners.

d. Up-to-Date Filings

  • All statutory filings (Form 8 and Form 11) must be completed until the year the LLP became non-operational.
  • Even if you haven’t done business, you are still required to file the annual return and statement of accounts up to date.

e. No Ongoing Litigation

  • There should be no ongoing court or legal cases against the LLP.
  • If litigation exists, strike-off is not allowed, and you need to go for formal winding-up procedures.


Voluntary Winding Up (LLP Act, 2008)

If the LLP has outstanding liabilities or is under dispute or litigation, the partners must initiate voluntary winding up by appointing a liquidator. This process requires approval from creditors, settlement of debts, and court supervision.


- Important Documents Required for LLP Strike Off:

  • Form 24 application
  • Consent of partners
  • Affidavit from partners
  • Statement of accounts showing nil assets and liabilities
  • Indemnity bond from partners
  • Copies of last filed income tax return (if applicable)


Eligibility Criteria for Company Closure

For private limited companies, the Companies Act, 2013 allows for closure mainly through:

  1. Strike Off (Fast Track Exit Scheme)
  2. Voluntary Winding Up
  3. Compulsory Winding Up by Tribunal

Again, we’ll focus on the strike-off process since it is the most widely used.


- Strike Off Under Companies Act (Section 248)

Under Section 248 of the Companies Act, 2013, companies can apply for strike-off by filing Form STK-2 if they meet these criteria:

a. Inactive for Two Years

  • The company has not carried out any business or operations for at least two consecutive financial years.

OR

b. Not Commenced Business

  • The company has obtained incorporation but has not commenced business within one year of incorporation.

c. No Pending Liabilities

  • There are no outstanding liabilities on the books (e.g., loans, creditors, statutory payments).
  • Directors must give a declaration that all liabilities have been cleared.

d. Shareholder Approval

  • The company needs to obtain consent from at least 75% of its shareholders (in terms of paid-up share capital) for the closure.

e. Up-to-Date Filings

  • All annual returns and financial statements (MCA Forms AOC-4, MGT-7) must be filed up to date.
  • Even dormant or non-functional companies are required to file returns before applying for closure.

f. No Ongoing Litigation

  • The company must not be facing any ongoing litigation or investigation.
  • If legal proceedings exist, the company must first resolve them before closure.


- Voluntary Winding Up (Companies Act, 2013)

Companies that have debts, liabilities, or ongoing disputes cannot go for a strike-off and must follow voluntary winding up.

  • This involves a special resolution of shareholders.
  • Appointment of a liquidator to settle debts.
  • Filing with the National Company Law Tribunal (NCLT).


Exceptions and Restrictions

Some companies are not eligible for strike-off:

  • Listed companies
  • Companies under inspection or investigation
  • Companies with charges (unless satisfied or resolved)
  • Companies involved in fraud or non-compliance matters


Key Documents Required for Company Strike Off:

  • Board resolution and shareholder consent
  • Application in Form STK-2
  • Indemnity bond from directors
  • Affidavit from directors
  • Statement of accounts (not older than 30 days)
  • PAN, GST cancellation proof (if applicable)
  • Income tax return acknowledgments


Common Factors for Both LLP and Company Closure

Across both LLP and Company closure, there are some common conditions:

  • Proper settlement of liabilities
  • Clearance of pending compliances and filings
  • No ongoing disputes or litigation
  • Proper internal approvals (partners or shareholders)

If these conditions are not met, you cannot take the fast-track exit route, and a formal winding-up process will be required.


Legal Provisions Involved

  • LLP Closure → Section 63, 64 of LLP Act, 2008; Rule 37 of LLP Rules, 2009
  • Company Closure → Section 248 of Companies Act, 2013; Companies (Removal of Names of Companies from Register of Companies) Rules, 2016


Time and Costs Involved

  • LLP strike-off (Form 24) takes 3–6 months, depending on the Registrar’s review.
  • Company strike-off (Form STK-2) also takes 3–6 months.

Both processes require professional assistance (CA, CS, or legal advisor) for accurate preparation and filing.


Frequently Asked Questions (FAQs)


- Can a company or LLP with outstanding loans apply for closure?

No, you must first settle or discharge all liabilities before applying for strike-off. If liabilities exist, you must go for formal winding-up.


- Is income tax clearance required before closure?

Although no specific “clearance” is mandated, the Registrar may seek acknowledgment of filed ITRs or ask for confirmation that no tax dues are pending.


- What happens to bank accounts and GST registration?

You must close the bank accounts and surrender GST registration before applying for closure. Proof of such closure may be required.


- Can a strike-off be reversed?

Yes, under Section 252 of the Companies Act, a company can apply for restoration to the register within 20 years of strike-off if certain conditions are met.


- Do we need a professional to assist with closure?

Yes, typically a Chartered Accountant (CA), Company Secretary (CS), or legal expert assists with preparing the necessary documents and filing them accurately.


Conclusion

Clousre of LLP or company in India is not just a simple matter of walking away; it requires compliance with specific legal and financial conditions. To qualify for the fast-track exit, you must:

  • Clear all liabilities
  • Complete all filings
  • Obtain proper internal approvals
  • Ensure no ongoing disputes

If you meet these eligibility criteria, the closure process becomes significantly simpler and faster. However, if there are complexities (like debts, disputes, or regulatory investigations), you will need to go through a formal winding-up, which can be more time-consuming and expensive.