Closure of Private Limited Company in India

Operating a business ( Company Registration ) comes along with its difficulties and hurdles. In some cases, when businesses do not work out as planned, it needs to be shut down. There may be various circumstances to wind up a company. In this article, we would discuss the four modes to close down a private limited company.

1. Sell the company
2. Voluntary winding up
3. Compulsory winding up
4. Defunct company winding up

 

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1.Sell the Company

To sell off a Private Limited Company is a sort of voluntary winding up of a company. It can be carried out by selling out the majority of shares or majority shareholding of a company. From a technical point of view, it is not actually a winding up. But, the shares or financial involvement in that business transferred to an entity or another person, and the majority of stockholders are discharged from their stakes and duties.

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2.Voluntary Winding Up

Voluntarily winding up of a company need long-drawn procedural formalities to comply. There are specific mandatory necessities which ought to be performed to voluntarily shut down a company.

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Procedure:

• According to the Companies Act 2013, a board resolution is needed for voluntarily winding up of a company, wherein the majority of directors require agreeing to wind up.
• Additionally, a Special Resolution is needed for winding up of the company where three fourths the entire Stockholders need to cast their vote in favour to wind up the company.
• The approval of the creditors or lenders is also needed for winding up the company. The creditors or lenders have to give their consent that the company does not owe anything to them, and the company can wind up.
• The company ought to issue a Declaration of Solvency, and the trade creditors of the company must accept the same. The company intending to wind up must demonstrate the company’s creditability in Declaration of Solvency.
• The appointed liquidator will prepare a report of the asset and liabilities, capital, reserves, etc.

All the procedures, as mentioned above, shall be prepared, presented and filed in prescribed forms. Even after the company’s winding up, the company’s name shall not be given and prohibited for two years to be used by all other applicants.

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3. Compulsory Winding Up

Companies that are registered under the Companies Act 2013 and committed an unlawful and fraudulent activity must be compulsorily wound up. Even if those companies contributed to some illegal or fraudulent activities, then such companies ordered to be compulsorily wound up by the tribunal. Following is the procedure for Compulsory Winding Up

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The following persons/entities/agencies may file a petition for compulsory winding up:

• The company or
• The trade creditors or of the company or
• Any contributors or contributory to the company or
• The Central or State Governments or
• Registrar of the Companies

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The petition shall be presented accompanying with the statement of affairs of the company A practicing CA will have to audit all the financial documents of the company accompanied by petition and the evaluation provided by the auditor on the financial statement need to be unconditional.

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An advertisement in a daily journal at least for 14 days The petition requires to be advertised in a daily journal at least for 14 days, and the language of the advertisement ought to be in the vernacular language of the respective area and in English.

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Proceedings of the Tribunal Form 11 shall be needed to order winding up the company.

• Tender the total audited books of accounts until the date of the order
• Give the details of liquidator like date, time and place
• Handover the documents and assets of the company

If the tribunal observes the accounts are in an orderly fashion, and all the necessary compliance have been completed, the tribunal will pass an order to dissolve the company within a period sixty days of obtaining the application. After the tribunal has passed the order, the ROC will then publish a notice in the Official Gazette declaring that such company is gets dissolved.

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4. Defunct Company Winding Up

According to the Companies Act 2013, a defunct company is also known as a dormant company. The government gives specific relief to such inactive or defunct companies because there are no commercial activities or transactions conducted by dormant companies. The Companies Act, 2013 lays down detailed rules for winding up of an inactive/defunct Company. A dormant company maybe winds up through a fast track procedure which needs submitting the STK-2 form. STK-2 Form is required to wind up a dormant company, and there is no further procedure for that. The STK-2 form requires to be filled with the ROC and the same needs to be properly signed by the director of the company approved by the board. The fast track exit scheme (FTE) applies to the following defunct companies:

• No asset and liability,
• No starting of any commercial venture after its establishment or
• Not carried out any business pursuits since last one year before applying under FTE