Closure of Private Limited Company in India

If you are continuously facing losses in your company and if you are struggling to run your business in an appropriate manner, it is advisable to close down your private limited company and begin a different course. When transactions are not taking place or directors of the company not able or ready to commence business operations, in that scenario also Private limited company requires to be shut down.

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How to initiate closure?

The process of closure of a Pvt Ltd Company is also known as strike off. In India, company closure is administered by Section 248 of the Companies Act, 2013 and should follow the rules of the Companies (Removal of Names of Companies) Rules, 2016.

Pass Resolution
name of company
File Documents
moa and aoa
Get Closure

Process For 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

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.

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.

  • 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.

  1. 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

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

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.

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.

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.

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

FAQ ON Closure of Private Limited Company in India

Strike Off implies the removal of the name of the company from the Register of Companies kept by the ROC. It is like the closure of a company, and the company will not be in existence after being struck off and cannot do any business operations after that.
No, it cannot trade, make payments or sell its assets or even it cannot get engaged in any other business pursuits.
It ordinarily takes at least three months for a business to get dissolved officially. However, the range of time can change considerably if the process is complicated. Usually, a company will stop to exist within three months of the winding-up notice advertised in the official gazette.
Statement of affairs is a document which provides a comprehensive account of assets and liabilities of a Company and is required for winding up of a company.
Notice is furnished to the registrar within ten days of passing of a special resolution.