In a recent move to further simplify business operations, the Ministry of Corporate Affairs ("MCA") amended the Limited Liability Partnership Rules, 2009 ("LLP Rules"), designating the Centre for Processing Accelerated Corporate Exit ("C-PACE") as the central authority responsible for processing limited liability partnerships' ("LLP") striking off applications. Prior to this amendment, the entire striking-off process was managed by the Registrar of Companies ("RoC").
This shift reflects the Government of India's ongoing efforts to improve the ease of doing business by providing a more efficient and streamlined exit process for businesses, including LLPs. The changes align with the government's broader agenda to simplify business closures and accelerate the strike off process in a cost-effective and timely manner.
It is pertinent to note that C-PACE is responsible for processing striking off applications when an LLP voluntarily submits a winding-up application. However, the RoC retains the power to issue the notices for striking-off LLP if RoC has reason to believe that an LLP has not been carrying on business or operations for a period of two years or more, as per the Limited Liability Partnership Act, 2008 ("Act"). Before passing a striking off order under the Act, RoC is required to provide a reasonable opportunity to the LLP to present its case.
The Government of India ("GoI") has been prioritizing improving the ease of doing business with several initiatives. These include rolling out the concept of small limited liability partnership and FiLLiP web form for LLPs. The concept of 'ease of doing business' encompasses not just a smooth start and streamlined operations but also an 'ease of exit'.
LLPs have various exit options available, including:
- Striking off under the Act;
- Voluntary winding up under the LLP (Winding Up and Dissolution Rules), 2012; and
- Voluntary liquidation under the Insolvency and Bankruptcy Code (IBC).
The choice of the mode of winding up of LLP largely depends on the status of operations of the LLP, its assets and liabilities situation.
Amongst these options, striking-off is often preferred due to its simplicity, cost-effectiveness, and suitability for non-operational LLPs. The process is less time-consuming, less complex process and a cost-effective process.
Ideally, business closure processes should be swift and straightforward. However, significant delays often complicate these voluntary procedures. Before the operationalization of C-PACE, businesses often faced prolonged processing times, which added to the administrative burden and inefficiencies.
In response to this, the MCA launched C-PACE via a notification on March 17, 2023, with the aim of processing striking-off applications for companies in a centralized and efficient manner. The introduction of C-PACE has been widely recognized as a positive move, reducing delays and ensuring a more efficient strike-off process for businesses across India.
According to the Press Information Bureau (PIB), prior to the operationalization of C-PACE, over 10,000 applications for voluntary striking off were pending with various RoCs. Since its operationalization, 21,372 companies have been struck off or dissolved between May 1, 2023 and July 22, 2024. Currently, less than 2,000 applications are pending at various stages of processing, with the average processing time now reduced to under 90 days which is a significant improvement from previous timelines.
Encouraged by the positive results from its work with companies, MCA has now extended the responsibility for LLP strike-offs to C-PACE, creating a more unified approach for handling both company and LLP closures. This centralized mechanism is expected to further enhance efficiency, reduce processing times and eliminate the need for multiple state-wise RoC to handle these applications.
Conclusion
The amendment to the LLP Rules designating C-PACE as the authority for LLP strike-offs represents a strategic step toward improving the overall business environment in India. This unified approach for striking off both companies and LLPs represents a significant step forward in creating a more efficient, transparent, and business-friendly environment in India. By simplifying the exit process, the government ensures that businesses can close down in an orderly manner with minimal administrative hassle.
Disclaimer: This publication is not intended to cover all aspects of the topics referred to herein and is only based on the understanding of the C-PACE designation for striking off LLPs. It has been prepared for informational purposes only.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
