Can LLP close without paying back partner loan?

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If your LLP needs to close but lacks funds to repay loans taken from partners, you may be able to write off the debt or convert it into capital. Converting the loan to a capital account is often the recommended approach to facilitate closure without immediate repayment. It's advisable to consult with an expert to understand the specific tax implications and procedures involved in your situation.

Dhiren Shah

Dhiren Shah (Querist)

18 June 2020 A LLP has taken loan from 2 partners. Now the business is not working and LLP needs to be shut down.
But there is no money to pay back partner loan. The loan amount was capitalized over the years.
Can LLP close without paying back partner loan?
Can LLP write off partner loan and then close?
What is the process in such a scenario?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

18 June 2020 Write off partner loan and then close.

Dhiren Shah

Dhiren Shah (Querist)

09 July 2020 hello sir thank you for your reply.
but will i have to pay income tax on write off amount?
also is it better to convert partners loan into capital account and then go for closer? again i s there any income tax liability which needs to be take care of here?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 July 2020 No income tax payable as it's partner's loan. Transfer the loan to capital account and close it.

Dhiren Shah

Dhiren Shah (Querist)

16 July 2020 Thank you very much sir. Converting loan into capital is the only possibility cause company has no money to pay income tax if write off this done

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