Differences between LLP Strike-off & Winding-up

Introduction

Limited Liability Partnerships (LLPs) are a popular business structure among entrepreneurs and small business owners due to their flexibility and Limited Liability protection. However, sometimes it becomes necessary to close an LLP due to various reasons such as financial difficulties, restructuring, or retirement of partners. In such situations, LLPs have two options: strike off or LLP winding up. This blog post explains the key differences between LLP Strike-Off & winding up  (two methods of closing an LLP), including their legal implications and practical considerations.

Introduction to LLP Strike Off and LLP Winding Up

LLP Strike Off is a legal process that allows an LLP to be removed from the register of companies maintained by the Registrar of Companies. This process is typically utilized when the LLP has no outstanding liabilities or assets and has not engaged in any commercial activity for a minimum of three months. Striking off an LLP is an economical and straightforward way of dissolving an LLP.

In contrast, the winding up of an LLP is a more complex process that involves liquidating the assets of the LLP, settling any outstanding debts, and distributing the remaining assets to the LLP partners. It can be initiated voluntarily by the LLP partners or by a court order when an LLP is deemed to be insolvent.

Key Differences Between LLP Strike-Off & Winding Up

Several significant differences distinguish LLP Strike Off & Winding Up:

1. Reasons for Dissolution

LLP Strike Off is appropriate when an LLP has no assets or liabilities and has not conducted any business activity for a minimum of three months. In contrast, LLP Winding Up is appropriate when an LLP is insolvent and cannot fulfill its financial obligations, or when the partners of the LLP have decided to terminate the partnership voluntarily.

2. Process and Timeframe

The process for LLP Strike Off is relatively simple and typically takes a few months to complete. The LLP must submit an application to the Registrar of Companies, accompanied by a declaration of solvency. If the Registrar approves the application, the LLP will be removed from the register of companies. In contrast, the process for LLP Winding Up is more complicated and can take several months or even years to complete, depending on the size and complexity of the LLP.

3. Liquidation of Assets

In LLP Strike Off, the LLP does not possess any assets or liabilities; therefore, there is no need for liquidation. In contrast, LLP Winding Up necessitates the liquidation of the LLP’s assets, settling any outstanding debts, and distributing any remaining assets to the LLP partners.

4. Liabilities

In LLP Strike Off, the LLP is not responsible for any outstanding debts or obligations since it has no assets or liabilities. On the other hand, LLP Winding Up necessitates paying off any outstanding debts and obligations before distributing any remaining assets to the LLP partners.

Conclusion

In conclusion, LLP Strike Off and LLP Winding Up are two distinct options for dissolving an LLP. LLP Strike Off is appropriate when an LLP has no assets or liabilities and has not conducted any commercial activity for a minimum of three months. LLP Winding Up is appropriate when an LLP is insolvent and cannot meet its financial obligations or when the partners of the LLP have opted to terminate the partnership voluntarily. The LLP Strike Off process is straightforward and typically takes a few months, while the LLP Winding Up process is more complex and can take several months or even years to complete. Ultimately, the choice between LLP Strike Off and LLP Winding Up is dependent on the specific circumstances of the Limited Liability Partnership and the objectives of the LLP partners.