Closing up of company in India is not just an administrative task—it is a legal process governed by the Companies Act of 2013 and other legal statutes. If a company has been stagnant, ceased operations, stopped earning revenues, or is no longer required, then a legal process of wind up of the company needs to be completed.
Although you may shut down your business, you still have a legal existence until you are formally dissolved.
What Does Closure of Company Mean?
Closure of a company can be defined as the process by which a company’s existence as a juridical person ceases, and as a result, its name is struck off from the register of companies kept by the Registrar of Companies (RoC).
Legally Possible Ways to Close a Company in India
The process of closing a company depends upon the financial position, tax and regulatory status, as well as the business history of the company. On the whole, there are the following ways of closing a company:
- Strike Off under Section 248 of the Companies Act, 2013
- Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016
- Winding Up by the National Company Law Tribunal (NCLT)
Every route has its own requirements of eligibility, procedure, time scale, and consequences of actions taken upon them.
Strike-Off of a Company
Strike off is the more economical procedure and is generally followed for the striking off of an inactive company. Section 248 of the Companies Act, 2013, is applicable to this procedure, which is meant for companies which have halted their business or have not yet started.
Once this process of striking off is completed and approved from RoC, the name of this company is struck off from the register of companies. This leads to its dissolution.
When Strike Off is Suitable
Sometimes it is necessary
To strike off is normally advised to those who belong to companies that:
- Have not commenced operation since incorporation
- Have remained inactive for the past two financial years
- Does not own any assets or have any outstanding liabilities
- Not intending to operate in the future.
It is particularly useful for small and dormant private limited companies looking for an inexpensive and expeditious exit solution.
Eligibility Criteria
There are certain conditions that the company has to meet before a strike off application is made:
- There are no outstanding liabilities, loans, and creditors’ dues.
- All accounts at the company’s bank will be closed
- Lack of pending litigation, investigation, or prosecution
- No inspection or investigation pending against the company
Failure to satisfy these requirements will lead to a refusal of the strike-off application.
Procedure for Strike Off of company
1. Board Resolution and Special Resolution
Board Resolution, authorising any director to make application in Form STK-2. Special Resolution / Consent of 75% members in terms of PUSC, approving application for Strike-off
2. Preparation of Statement of Assets and Liabilities
Statement of accounts in Form No STK 8 containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant
3. Affidavits and Indemnity Bonds
Indemnity bond duly notarised by every director in Form STK-3. (For Govt. Co. Form STK-3A) Affidavit in Form STK 4 by every director of the Company
4. Filing of Form STK-2
Form STK-2 is filed along with filing fees Rs 10,000 and supporting documents.
5. Verification by Registrar of Companies
The RoC examines the application and publishes a public notice to invite objections.
6. Cancellation of the Name of the Company
If there are no objections, the RoC strikes off the name of the Company and publishes the notice of dissolution in the Official Gazette.
Timeline For Strike Off
The whole procedure normally takes 3 to 6 months, depending on the correctness of the documents and the workload of the ROC.
Important Note on Directors’ Liability
Although the company has undergone strike-off, in fact, its directors personally remain liable for any liability and obligation arising before the closure of the company. Hence, full compliance is required in the future.
Voluntary Liquidation of Company
Within the Insolvency and Bankruptcy Code of 2016, voluntary liquidation is an organized type of winding up as described under Section 59. The type of liquidation applies to companies which are financially solvent but whose shareholders choose to stop doing business.
It provides a transparent and legally sound procedure for dealing with liabilities and distributing assets before dissolution.
When Voluntary Liquidation is Appropriate
Voluntary liquidation is appropriate in situations where:
- The company always has assets and liabilities
- The business entity appears to be financially sound and has the ability to pay off its liabilities
- Shareholders jointly decide on closing of the business
- Stakeholders require formal settlement and asset distribution
To start voluntary liquidation:
- Signed declaration by the directors regarding solvency
- Shareholders need to pass a special resolution
- A registered Insolvency Professional shall be appointed as liquidator
- Creditors’ approval is required, if applicable
The voluntary liquidation process involves the following steps:
1. Declaration of Solvency
Directors prepare and file a declaration stating that the company is solvent and capable of paying its debts.
2. Appointment of Liquidator
Shareholders appoint an Insolvency Professional as liquidator through a special resolution.
3. Public Announcement
The liquidator makes a public announcement inviting claims from creditors and stakeholders.
4. Settlement of Liabilities and Realisation of Assets
The liquidator verifies claims, settles all liabilities, and realises the company’s assets in a systematic manner.
5. Preparation and Filing of Final Report
After completion of liquidation activities, the liquidator prepares a final report detailing asset distribution and compliance.
6. Dissolution Order
The final report is submitted to the appropriate authority, and upon approval, a dissolution order is passed, formally closing the company.
Timeline
The timeframe for the process is anything from 6 to 12 months, depending on the intricacy of the assets and the stakeholders.
Important Note
Voluntary liquidation ensures a greater level of legal certainty and shields the directors from future litigation by ensuring that all liabilities have been appropriately taken care of prior to dissolution.
Winding Up by NCLT
Winding up through the National Company Law Tribunal is a judicial process resorted to when strike off or voluntary liquidation is impossible. It’s usually resorted to in cases involving insolvency, fraud, and mismanagement, or issues relating to public interest.
This approach is court-driven, procedural, and legally intensive.
Applicable Situations
The grounds on which NCLT winding-up can be made are as follows:
• The company is unable to pay its debts
• There is fraud or grave misconduct proved to have taken place
• There are significant legal disputes or investigations
• It is in the interests of either stakeholders or public policy to close it.
Overview of Process
• Filing of winding-up petition
• Order of admission by NCLT and appointment of Liquidator
• Control and liquidation of assets
• Claims Settlement
• Order of final dissolution
Timeline
There is no fixed timeline: the whole process can extend for many years depending on litigation and tribunal proceedings.
Documents Required for Company Closure
Depending on the closure method, common documents include:
- Affidavit of both directors to be printed on Rs 10 stamp paper and notarised it.
- Indemnity Bond of both Directors to be printed on Rs 100 Stamp Paper and notarised it.
- Board Resolution and Special Resolution to be printed on Letter head of company
- Statement of accounts to be certified by Chartered Accountants not later than 30 days.
- Pan card copies self-attested of both directors needed.
- Address proof copy showing same address as mentioned in DIN and other papers, self-attested of both directors needed.
- Proof of bank account closure
- Digital Signature Certificates
- Gst registration cancellation certificate
- Surrender of pan of company
- Income tax return acknowledgement
- NOC from creditors, if applicable
- Additional documents as required by authorities
Importance of the Closure of a Company
Failure to legally close down a company may expose the directors and shareholders to the following serious consequences:
- Disqualification of directors
- Heavy monetary penalties
- Legal notices and prosecution
- Limitations on future business activities
- Ongoing compliance obligations even though the company is not active
Proper closure removes the risk and offers legal closure on the issue at hand.
Why Choose My Legal Business LLP to Close a Company in India?
In My Legal Business LLP, we provide holistic support services in dissolving a company that are efficient and risk-free. This entails eligibility testing, document preparation, and government formalities to efficiently wind up a company.
With professionals, clear pricing, and client-focused delivery, we ensure your business is shut down legally and finally, with no future risks.
Conclusion
It is essential to learn the appropriate legal procedure of dissolving a company to prevent any legal consequences. This helps one close the company successfully with the help of legal professionals.
For a secure and convenient closure, professional help is highly advised.
Frequently Asked Questions- How to Close a Company Legally in India?
1. What are the lawful proceedings for winding up a company in India?
A company can be struck off in a strike-off procedure according to Section 248, a voluntary liquidation according to IBC, 2016, and a winding up according to NCLT, depending on its financial and compliance standing.
2. The quickest way to shut down a business in India would be?
Strike Off under section 248 of the Companies Act of 2013 is the quickest and most economical solution for non-operational companies.
3. Are all forms of ROC return required before closing a company?
ROC returns need to be filed up to the year when the business or the business entity has been operating.
4. Can a company with liabilities be struck off?
No, companies having outstanding liabilities or creditors are required to proceed with voluntary liquidation or winding up.
5. Is GST cancellation necessary when closing a company?
Yes, the GST registration has to be cancelled before winding up the company.
6. Can the Registrar of Companies strike off a company on its own?
Yes, the RoC had the authority to suo moto strike off the companies which had remained non-compliant for an extended period of time.
7. Is NCLT approval required for company strike off?
No, approval of the NCLT is not required in the case of voluntary strike offs under Section 248.
8. Can a struck off company be restored later?
Nevertheless, a struck-off company can also be revived by filing an application with the NCLT before the expiry of the stipulated timeframe.
9. Are directors liable after company closure?
Nonetheless, the directors can be held liable for any actions and liabilities accrued before the company closes its operations.
10. Is professional certification necessary for closing a company?
Yes, forms relating to company closure require the signature of a Chartered Accountant (CA), a Company Secretary (CS), or a Cost Accountant (CMA).
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