October 30th, 2012 / Insight posted in

Should I shut down old firm?

TM writes: Having recently transferred our business into a larger business, the limited liability partnership is no longer required. It ceased trading six months ago and has no assets. Does it need formally closing down or does its inactive state mean nothing further is needed?

Closing down a limited liability partnership (LLP) is equivalent to closing down a limited company, writes Jon Sutcliffe, partner at Kingston Smith LLP. Where the LLP is solvent, this can be done by solvent liquidation or by application to strike the LLP off.

A strike-off application is done on form LL DS01 and must be signed by the majority of members, together with a filing fee of £10. This route is generally the cheapest and simplest but requires that the LLP has not changed name, carried on business, or already been subject to insolvency proceedings at any point in the preceding three months.

Before striking off, you should check your LLP’s members’ agreement, and also any covenants you may have had in agreements when you transferred the business, as these may affect how the LLP can be closed down.

LLPs also need to file partnership tax returns for all tax years in which they are in existence. So despite ceasing to trade in the last tax year, you will need to file a tax return for the 2011-12 tax year and also for the dormant 2012-13 period up to dissolution.

Some LLPs prefer to have a formal solvent liquidation, as this can reduce the period for which the designated members are theoretically exposed to creditors’ claims from six down to two years. Liquidation is appropriate if there is any likelihood of creditors appearing who may not have previously been known. In certain buyouts, you may not know what you have inherited.