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How to close a company? – Legal options and process

HomeCompanyHow to close a company? – Legal options and process
  • How to close a company - Knovalt
07
Apr
How to close a company? – Legal options and process
  • Author
    Resham Goyal
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    1 Comment
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Registering a Private Limited Company may be a very good idea to do business. This would not only help you in limiting your liability but also in carrying out business operations efficiently. However, one should not forget that every coin has two sides. The other side of starting a company is closing it down. What if your business fails? What if you want to leave the company you promoted? What if you would like to close the company? These questions might not be of any concern at the time of starting a business, but these questions must be answered before bringing a company into existence. One single question that represents all these questions is – HOW TO CLOSE A COMPANY? In this article, I shall explain the legal ways to close down a company registered under the Companies Act, 2013.  

  1. How to close a Company?

As per law, there are two alternatives to close down a company. 1) Winding up a company (I shall call it a lengthy process) and 2) Strike off – (which is a short and easy way).

Winding up is a proceeding by which your company is dissolved and in course of dissolution, Insolvency Resolution Professional is appointed (earlier known as liquidator), assets are realized, liabilities are paid off and surplus is distributed among members. Winding up is a very time consuming process and expensive as well.

I shall discuss in details the short process i.e. Strike – off since it is the most preferred method to close down an in-operational company. So what is Strike off? Whenever a company is incorporated, its name is registered / entered in the data base of governing statutory agency known as the Registrar of Companies (ROC).  The process of removing such registered company from the data base of ROC is known as strike off. Once the name of a company gets struck-off from the data base of ROC, the existence of the company finishes.

  1. What are the grounds for striking off the name of a Company?

The grounds on which your company’s name can be removed from the data base of ROC are as follows:

a. Your company has failed to commence its business within one (1) year of its registration

OR

b. Your company is not carrying on any business or operations for a period of two (2) immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company. 

  1. What are the types of strike off ?

Strike off can be of two types –

  • Strike off by ROC
  • Voluntary strike off

It is pertinent to note here that, whether your company goes into voluntary strike off or the strike off is done by the ROC, in both the cases the company should satisfy the grounds mentioned above in point no. 2.

  1. How strike off is done?
  • Strike off by ROC

The registrar of company may deliberately strike off the name of your company from its data base if it falls under any of the grounds in point no. 2 mentioned above. The following procedure will be followed in case of strike off by ROC –

  1. The ROC will send a notice regarding the removal of the name of your Company from its data base.
  2. You are required to give your representation along with relevant documents within 30 days from the date of such notice.
  3. If ROC receives no representation on your behalf within 30 days from the date of the notice, the ROC will remove the name of your company from its data base.
  • Voluntary Strike off

If you want to close your company, you can avail this option subject to the condition that you fulfill the grounds mentioned in point no. 2 above. The steps involved under voluntary strike off are as follows:

  1. Your company is required to extinguish all its liabilities i.e. pay all your dues immediately.

Case – Suppose your company has taken loan and the same is reflecting on the liability side of your balance sheet. In order to extinguish this liability, you can convert the loan into equity shares by issuing shares in lieu of the said loan and extinguish your liabilities.

  1. Thereafter you may –
  • issue notice for conducting Board Meeting
  • conduct the Board Meeting and decide the date of Extra Ordinary General Meeting
  • conduct the Extra Ordinary General Meeting
  • pass Special Resolution for filing an application for the removal of company’s name from the data base of ROC

 OR

  • issue notice for conducting Board Meeting
  • conduct the Board Meeting and approve the Board Resolution for filing an application with ROC for removal of the Company’s name from the data base of the ROC
  • take consent of Shareholders having not less than 75% shareholding of the paid up capital of the company
  • You will be required to file the application with ROC in Form STK – 2 along with all the relevant documents.**
  • The ROC on receipt of application will issue a public notice for striking off the name of your company from its data base.
  • After the expiry of date mentioned in notice, the ROC will strike off the name of your company and your company will be dissolved.

*if your company is incorporated for charitable purpose, then you can not apply for voluntary strike off.

**Documents required to be attached along with form STK – 2:

  1. Form STK – 3 viz., indemnity bond duly notarized by every director of the company
  2. Statement of accounts
  3. Certificate by Chartered Accountant
  4. Form STK 4 viz., affidavit by every director of the Company
  5. Statement regarding pending litigations against the company
  6. Copy of special resolution or consent of shareholders

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One Comment
  • Mandeep Singh rana Reply

    Thank you so much mam for such a good knowledge

    April 22, 2018 at 12:21 pm

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