Closure of Company

An Overview:

The challenges of running a business are numerous. It is sometimes necessary to close a business when things do not work out. Closing or winding up a company can be motivated by several factors. Closure of Company can be accomplished in five different ways. By removing your company name from MCA records, you can close your business very easily. You will be able to get this done in no time with our experts. The following is applicable if,

•  If your company has not started doing business within one year of incorporation; or
•  There have been no business or operations carried out by your company for the past two financial years.

Methods for closure of company:

There are five common ways to wind up a private limited company. We will discuss all four methods of permanently shutting down your business in this article.

1.   Sell the Company:

It is also possible to voluntary wind up a company by selling it off. You can sell the company by selling its shares (by selling the majority shareholding of the company). In technical terms, there is no winding up, but the stakes are transferred to another person or entity, and the majority shareholders are relieved of their duties.

2.   Compulsory Winding up:

If a company registered under the Companies Act commits an unlawful act or commits fraud, or if it contributes any act in some fraudulent or illegal activity, the Tribunal may wind up such a company compulsorily. Below are the steps to follow:

•  The petition will be submitted.
•  At least 14 days must pass before the petition is advertised in a daily journal, and the advertisement must be in English and in the regional language.
•  Hearings will be held on the date fixed for hearing, and objections and replies will be accepted from both parties.
•  Provisional liquidators may be appointed by the Tribunal.
•  As part of the winding up order, the following provisions shall be stipulated:

·        It is the responsibility of such persons to submit all audited accounts up to the date of the order.

·        The location, date, and time of the company liquidator's meeting.

·        Transfer all assets and documents related to the assets to the liquidator of the company.

• A company liquidator shall take into custody all the company's properties and effects, actionable claims, and books and papers upon a winding-up order.
•  In 60 days after the winding-up order is issued, the liquidator shall submit a report to the Tribunal.
•  In order to dissolve a company, the company liquidator must apply to the Tribunal after the affairs of the company have been completely wound up.
•  An order for dissolution of the company should be made if the tribunal finds that such an order is just and reasonable in the circumstances of the case. Accordingly, the company shall be dissolved.
•  A copy of the order must be forwarded to the registrar within 30 days of the date of the order.
• In the event the tribunal finds the accounts are in order and all the requirements of Closure company have been met, the tribunal will pass an order dissolving the company within 60 days after receiving the application.
• As soon as the tribunal passes its order, the registrar will issue a notice to the Official Gazette stating that such company has been dissolved.

3.   Voluntary Winding up:

The process of winding up a company voluntarily requires adherence to a long set of procedural rules. The closing down of a company voluntarily requires the completion of certain mandatory requirements. The following situations can lead to a voluntary winding up of a company:

• Upon expiration of its formation period, or upon the occurrence of any event setting forth the dissolution clause in its articles, or upon the occurrence of any other event providing for its dissolution, the company passes a resolution in its general meeting.
•  In order for the company to wind up voluntarily, a special resolution is passed (with approval from at least 3/4th of the shareholders).

As soon as the above resolutions are passed, the voluntary winding up begins. In the same meeting, the company should also appoint a liquidator. The appointment should also be approved by a majority of the company's creditors (in terms of value).

4.   Winding up of a Defunct Company:

          Defunct companies are those that have become dormant according to the Companies Act, 2013. Due to the lack of financial transactions undertaken by dormant or defunct companies, the government provides certain relief. According to the Companies Act, 2013, a defunct company must be wound up in accordance with its provisions. Defunct or dormant companies can be wound up through a fast-track procedure by submitting the STK-2 form. As a result, Form STK-2 is required to wind up a Defunct Company, and no additional procedure is required. In this scheme, a defunct company is one that has:

·        Neither an asset nor a liability exists and.

·        A company that has not engaged in any business activity since its incorporation.

·        Has not carried out any business activities for the last one year prior to applying for FTE (Fast Track Exit Scheme).

5.   A grant of “Dormant Status”:

If you have registered a company for a future project, and therefore it is not operational at the moment, this option is suitable for you. It is also a good idea to choose the "dormant status" if an in-operational company cannot be closed because of assets such as land, buildings, etc.