Closing Private Limited Company India

The process of dissolving a company is called Winding up. For this, you need to submit an account statement and all the directors should execute an affidavit and indemnity.

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Closure of Private limited company

If the company owners or directors decide to discontinue or wind up the business, they may consider for the options of the closure. Most feasible or easiest way to close a company is striking off its name from Register of Companies. This is preferable when a company is inoperative for a certain period. Other options include a winding-up petition, however that involves more time, investment and compliance.

On approval of the strike off, the company’s name is removed from the register and thus, it is not existent in the eyes of laws. The company must fulfill all the compliance before proceeding for the strike-off application. The application is accompanied by various documents and requires assistance from the professional.

Ways of Closing a Private Limited Company India

Winding up
This option is preferred when the company is in the operative stage and has assets and liabilities. It will include approval from Members, Directors, and creditors. It also requires appointing a liquidator for the said process to manage the company’s affairs during the whole process. It is often time-consuming process.
Striking off
Striking off is preferred by a company which has relatively no or less outside liabilities. When a company is inoperative since its inception or in the past two years, it may apply for strike-off, often referred as fast-track exit. The primary condition is that the company has no assets or liabilities and has complied with relevant applicable provisions.

Documents Required for dissolving a company

The documents required for the closure of the company are;

  • PAN card of the company
  • Certificate of closure of the company’s bank account .
  • An indemnity bond, which should be notarized by the directors.
  • Latest statement of company accounts.
  • Statement of accounts related to all assets and liabilities of the company, audited by Chartered Accountant (CA).
  • Proof of approval of the resolution by 3/4th of board members.
  • Application for removing the name of the company.

How to wind up a company?

  • The winding-up of a company involves a shutdown of all business operations, transactions and selling off all company’s assets to other individuals or entities, to clear off company debts.
  • Once the debts have been cleared off, the remaining assets of the company will be shared among shareholders concerning the capital invested by them
  • The winding-up of the company can be executed in two different ways
  • Compulsory winding up:

    The compulsory winding up of a company can be executed by the order of a tribunal or a court, bypassing a special resolution made by the directors during the company’s board meeting, which proposes a court intervention. Identically, by filing a petition to a court or a tribunal by any official person of the company, if the company has indulged in any fraudulent/unlawful activities, it can be winded up compulsorily.

  • Voluntarily winding up:

    The company requires a resolution from the directors, to sell off all assets of the company or to transfer the stakes to another entity.

Closing Company Process

  • With respect to the companies act, 1961, the resolution of the board meeting is essential to start the closing company process.
  • In a special resolution, a majority of 3/4th of the company shareholders should register their vote on the side of winding up the company.
  • Similarly, the company’s creditors should approve the resolution made for winding up, without complications.
  • The “Declaration of Solvency” should enclose outstanding debts along with the auditor report, regarding total assets of the company and it should be forwarded to the RoC (Registrar of Companies).
  • Now the official liquidator will be appointed to perform the winding up process from the date of passing the resolution.
  • After the resolution has been passed, the liquidator should open a bank account within a period of one month.
  • In any scheduled bank, the liquidator should open a bank account in the name with, the prefix “ the name of the company” followed by “voluntary liquidation”.
  • The liquidator will collect all the reliable documents and prepare a report consisting of final accounts and present this in a general meeting for approval. Here, the majority of members should pass this resolution.
  • After compiling all the necessary documents, the final report will be sent to the tribunal for reference.
  • After examining the credibility of the report, the tribunal will pass a decree for the dissolution of the company.
  • A copy of that decree will be forwarded to RoC by the liquidator within 30 days of the order dated.
  • Now the RoC will mandate the winding up of the company, and remove the name of that company from the registry.
  • Simultaneously, the RoC will publish this order in the official gazette of india.
  • Compulsory wind up:

    Any company registered in India can be compulsorily winded up by theaction of the tribunal or court, if the respective company has indulged in any fraudulent/ unlawful activities. The petition can be filed by

  • The company itself
  • The Registrar of companies (RoC)
  • The creditors of the company
  • The central/state governments
  • The contributors

FAQs on Closing Private Limited Company India

Liquidation is important for the following reasons-

  • Once the liquidation process is over, the directors and other company officials are free from all creditor liabilities.
  • If the company directors pass a voluntary declaration, the company can avoid legal actions from a tribunal or a court.
  • The cost involved in the liquidation process is comparatively lower than other modes of closure
  • The creditors are benefited as they will be eligible for default payment from the sale of assets

The liquidation strategy refers to liquidating the assets of a company before winding up operations. By initiating the liquidation process, the company may sell its assets to meet obligations and repay liabilities.

As a part of the liquidation strategy, a liquidator is appointed to oversee the process of selling the company assets. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.

In general, the liquidation process of a company in India can take up to 2 years to complete, since the date of application, in case of compulsory liquidation. It may take less time for a voluntary liquidation process to complete. The duration may vary from company to company, depending on the complexity of the process involved.

As a part of the liquidation strategy, a liquidator is appointed to oversee the process of selling the company assets. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.

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