What is the Difference Between Winding Up and Strike Off

When a business decides to shut down operations in India, it must follow a legal procedure to close the company officially. This process can be carried out through winding up or strike off. While both lead to the closure of a company, they are fundamentally different in terms of procedure, intention, cost, timelines, and consequences.

Understanding the difference between winding up and strike off is essential for business owners, directors, accountants, and legal advisors. This blog breaks down both methods, highlights the key differences, and helps you choose the appropriate route based on your situation.

Table of Contents

What is Winding Up?

Winding upis a formal process of closing down a company under the supervision of a tribunal (NCLT) or through voluntary means. It involves selling off the company’s assets, paying off liabilities, and distributing any remaining assets among the shareholders.

There are two primary types of winding up under the Companies Act, 2013:

1. Voluntary Winding Up:

Initiated by the members of the company when they decide that the business is no longer viable or has served its purpose.

2. Compulsory Winding Up:

Ordered by the National Company Law Tribunal (NCLT), often in cases involving fraud, misconduct, insolvency, or failure to file statutory returns.

Key Features of Winding Up

Supervised Process: Overseen by a Liquidator or Tribunal.
Asset Distribution: After liabilities are paid, remaining assets (if any) are distributed to shareholders.
Legal Proceedings: Involves multiple stages and requires legal filings.
Time-Consuming: May take several months or even years, depending on complexity.
Applicable to Active Companies: Companies with operations, assets, or liabilities.

What is Strike Off?

Strike Offrefers to the removal of a company’s name from the register of companies maintained by the Registrar of Companies (ROC). It is a simpler, faster, and less expensive method of closure used mainly for dormant or non-operational companies.

This can be initiated:

1. Suo Moto by ROC:

If a company fails to commence business within one year or is inactive for two consecutive years without filing returns, the ROC can strike off the name under Section 248(1).

2. Voluntarily by Company:

Under Section 248(2) of the Companies Act, 2013, a company can apply to the ROC for strike off after settling liabilities and obtaining board and shareholder approval.

Key Features of Strike Off

Simple and Quick: Usually completed in 3-4 months.
No Assets or Liabilities: The company must be clean -with no dues or active business.
ROC Filing-Based: No tribunal intervention.
Used for Dormant Companies: Best suited for companies with no activity.

Winding Up vs. Strike Off -Key Differences

Criteria	Winding Up	Strike Off
Definition	Formal closure by liquidating assets and paying debts	Removal of company name from ROC records
Applicability	Active companies with assets/liabilities	Dormant/inactive companies with no operations
Authority Involved	Tribunal (NCLT) or liquidator	Registrar of Companies (ROC)
Governing Section	Section 270 to 365 of Companies Act, 2013	Section 248 of Companies Act, 2013
Procedure	Lengthy process involving tribunal, creditors, liquidator	Application in Form STK-2 to ROC
Time Required	6–18 months or more	3–4 months
Cost	High (Legal, professional, liquidation fees)	Low (Minimal government and professional fees)
Asset Distribution	Yes, after settling liabilities	No, assets must be sold and liabilities cleared before
Public Notice	Gazette Notification and stakeholder communication	Notice by ROC in MCA portal and Gazette
Revival	Difficult or impossible once liquidated	Can be revived within 20 years (Section 252)

Procedure for Strike Off -Step-by-Step

If your company is eligible for strike off, here’s the simplified procedure:

Board Resolution – Obtain approval from board of directors.
Clear Liabilities – Settle all dues and close bank accounts.
Shareholders’ Approval – Pass a special resolution.
Form Filing – File Form STK-2 with attachments:
- Affidavit and Indemnity Bond (STK-3 & STK-4)
- Statement of Accounts (certified by CA)
- Special Resolution copy
- PAN, Aadhaar, etc.
Public Notice by ROC – ROC publishes notice inviting objections.
Final Order -Name is struck off from MCA registry.

Procedure for Winding Up – Step-by-Step (Voluntary)

Declaration of Solvency
Board Meeting -Proposal for winding up.
Shareholders’ Meeting – Special resolution passed.
Appointment of Liquidator – Professional liquidator is appointed.
Public Notice -In newspapers and ROC filings.
Liquidation Process -Assets are sold, liabilities settled.
Final Report -Liquidator files the report with ROC/NCLT.
Dissolution Order -Company is officially dissolved.

When to Choose Winding Up vs. Strike Off?

Here’s how to decide:

Situation	Recommended Option
Company has liabilities/assets	Winding Up
Facing legal disputes or creditors	Winding Up
Inactive for more than 2 years	Strike Off
No operations, no assets or liabilities	Strike Off
Wanting faster and cheaper closure	Strike Off
Voluntary closure of solvent company	Winding Up (Voluntary)

Impact of Company Closure:-

1. After Strike Off:

Company ceases to exist legally.
Cannot commence any activity unless revived.
Directors may be disqualified under certain circumstances (e.g., non-filing).

2. After Winding Up:

Assets are liquidated; creditors repaid.
Directors’ obligations end after final dissolution.
Legal standing completely ceases.

Precautions Before Closure

File all pending ROC returns.
Settle all financial dues (loans, taxes, vendors).
Close bank accounts.
Take professional before starting the process.

Frequently Asked Questions (FAQs)

Q1: Can an active company apply for strike off?

No, only companies that are inactive and have no assets or liabilities can apply for strike off.

Q2: Can a company with debts go for strike off?

No, all liabilities must be cleared before applying for strike off.

Q3: What happens if ROC strikes off my company suo moto?

You can apply for revival under Section 252 of the Companies Act within 20 years through NCLT.

Q4: Is it mandatory to appoint a liquidator in winding up?

Yes, for both voluntary and tribunal-ordered winding up,a liquidator is appointed to manage the process.

Q5: Is winding up a one-time irreversible process?

Yes, once completed, the company ceases to exist permanently.

Conclusion

While both winding up and strike off lead to company closure, they serve different purposes and follow different legal paths. Strike off is a cost-effective and quicker option for dormant companies, while winding up is more suitable for companies with operations, liabilities, or legal disputes.

Choosing the right method ensures legal compliance and safeguards the interests of shareholders, creditors, and directors. It is always advisable to consult a professional for guidance tailored to your specific circumstances.