Running a business isn’t a straightforward undertaking as it revolves around a number of unseen challenges. Series of unsuccessful years seldom compel businesses to quit their operation and opt for winding up. Following are the legitimate ways to close a private limited company in India.
Selling of the Company
Selling off a privately held company also falls under the voluntary winding up. It can be achieved by selling the company’s shares. Generally speaking, it is not referred to the actual winding up, but the stakes are mobilized to another party or company, and the majority shareholders are discharged of their liabilities and stocks. This is a viable way to close a private limited company in India.
Compulsory Winding Up
Compulsory Winding up is another legitimate way to close a private limited company in India. Any registered entity is falling under the Companies Act[1] , which committed an illicit act or even if they contributed any action in unlawful undertakings, then such company would be wound up mandatorily by the Tribunal.
Compulsory winding up entails the given steps:
Step 1: Petition filing
Following are the eligible parties or entities who can file the petition:
- The Company or
- Company’s Trade Creditors or
- Company’s Contributors or any contributory
- Any or all of the above or
- The Central or State Government or
- By the ROC, i.e. Registrar of the Companies
Form WIN 1 or WIN 2 is used for filing the petition in court. It should be submitted in triplicate. The petitioner is required to attest Form WIN 3 (an affidavit) with the said petition.
Step 2: Filing of Statement of Company’s Affairs
All the documentation attested with the petition ought to be audited by a practising CA. The statement of affairs should be filed in Form WIN 4 in duplicate, which must be approved by an affidavit in Form WIN 5.
Step 3: Advertisement for at least 14 days
The petitioner must publish the petition in a daily journal at least for fourteen days in the regional and English languages. Form 6 is required for publication purposes.
Step 4: Proceedings of the Tribunal
The Tribunal will consider the petition on the fixed date; accept objections and responses from the petitioner and respondent. The Tribunal might assign a provisional liquidator. Form WIN 8 shall serve as an order format for appointing a provisional liquidator.
The order pertaining to winding up shall be made in Form WIN 11. The winding-up order shall prescribe:
- Such individuals must furnish the complete audited books of account up to the date of the order.
- Furnish the date, time, and place for the Company Liquidator.
- Surrender the assets as well as the documentation of the same to the Company liquidator. Upon the release of a winding-up order, the said official shall take all properties and effects into his/her custody and actionable claims and paperwork of the company.
- The Company liquidator shall furnish a report before the Tribunal within sixty days of the date of the winding-up order.
- After successful winding up, the Company Liquidator shall apply to the Tribunal seeking dissolution of the company.
If the Tribunal finds it viable to pass the order of the company’s dissolution, then it will make an order directing that the company be dissolved from the order’s date. The dissolution of the company shall be accomplished accordingly. The Company Liquidator shall, within thirty days of the order’s date, share an order copy to the Registrar.
If the Tribunal finds the account legitimate and in order and all the underlying conditions have been met, the Tribunal would pass the judgment directing the petitioner to accomplish dissolution formalities within sixty days of receiving the application
After the judgment has been passed, the Registrar shall share notification to the Official Gazette confirming that such a company is dissolved.
Let us proceed to next method of winding up under which officials can voluntarily opt to close a private limited company in India.
Voluntary Winding Up for closing a Private Limited company
Voluntarily winding up adheres to long procedural compliance and it another viable way to close a private limited company. There are certain underlying conditions that have to be met for closing a company voluntarily. A company can opt for voluntarily winding up in the following scenarios:
- The company passes a resolution in its general meeting after the expiration of the duration for which it is established or after the occurrence of any scenario in respect of which the articles provide for the company’s dissolution.
- The company passes a special resolution (with the consent of at least 3/4th of the company’s shareholders) for a voluntary winding up—such a wind-up starts from the date of passing of the resolutions above. The company is also liable to appoint a Company liquidator in such a meeting. Keep in mind that the confirmation of the majority of the company’s creditors is necessary for this purpose.
Voluntary winding up entails the given steps:
- The company passed a resolution regarding dissolution in the general meeting as cited above.But, the majority of directors need to render their confirmation for winding up.
- The Trade Creditors’ consent is also required for the company’s wind up. Such individuals have to render their consent that they do not have any accountability if the company gets wound up.
- The company must prepare a Declaration of Solvency and the company’s trade creditors should accept the same. The company has to show the entity’s credibility in such a declaration.
- The liquidator above shall undertake the winding-up legalities and prepare a detail of the winding-up on the properties, assets, debt, etc. The report will be prepared prior to the general meeting for approval and passing a resolution regarding dissolution.
- The company liquidator shall share a copy relating to the company’s final accounts and the resolutions to the ROC.
- The liquidator shall also file an application cum form to the Tribunal for a judgement on the company’s dissolution.
- After being satisfied, the Tribunal shall stamp their approval and pass an order of dissolution within sixty of the application. A copy of such an order must be filed with the ROC.
All the procedures mentioned above shall be filed in a standard form. It must be noted that the name of the wound-up company remains inaccessible to other entities for two years from the date of wound up. The format for multiple forms and elaborate procedures relating to winding up is cited in the Companies (Winding-up) Rules, 2020.
An Overview on the Defunct Company Winding Up
As per to the Companies Act, 2013, a defunct company (non-functional entity) refers to a company that has gained the Dormant Company’s Status. Since these entities lack adequate financial support and do not have access to financial transactions, India’s government renders plenty of relaxation to them.
The Company Act, 2013 has underpinned the winding-up procedure of a Defunct Company. A Dormant or Defunct company can be subject to winding up with a fast-track procedure. For this, submission of the STK-2 Form is required.
The STK-2 Form must be filed with the respective ROC, and the same must enclose the signature of the company’s director having the permission of the board to do so.
For the rationale of this scheme, a defunct entity refers to an entity that has:
- Nil assets and liability, and
- Which has not started any business undertaking post-incorporation or
- Has not been performing any business undertakings since last one year prior to applying Fast Track Exit Scheme
Conclusion
The process of winding up adheres to a copious amount of paperwork and endless legal requisites. This is why it is fair to get in touch with someone who has expertise in this specific area to avert any chances of application rejection and process delay. Corpbiz is well-versed in winding-up legalities and is fully aware of ever-evolving compliances that revolve around it. You can connect with Corpbiz’s associates to avail of professional-grade assistance to close a private limited company, anywhere in India.
Read our Article:Why Company Registration is important for small businesses?
