Closure of Private Limited

Section 270 of the Indian Companies Act; 2013 contains provisions regarding the winding up of a company; either by the Tribunal or Voluntarily.

This webpage offers exclusive informaiton about the Voluntary Winding Up or Closing Down of a Private Limited Company in India; to help the concerned enterpreneurs or companies located in entire country.

A company can be closed by adopting the following ways:-

(A) Strike off a company under Section 560 :

Section 560, of the Companies Act, 1956, deals with strike off provisions of a defunct company. Any defunct company desirous to strike off its name from the register of Registrar of company can apply in Form FTE for strike off its name from the register maintained by ROC as per Guidelines for ‘FAST TRACK EXIT MODE’ issued vide General Circular No. 36/2011 dated 7.6.2011. Similarly, ROC has also power to strike off any defunct company after satisfying himself of the need to strike off a defunct company and has reasonable cause. But before passing any order in this regard, an opportunity of being heard must be provided to the defunct company by following the due procedure u/s 560.

(B) Winding up

Section 425, of Companies Act, 1956, deals with modes of winding up.
The winding up of a company may be either –
(a) By the Tribunal (also known as compulsory winding up)
(b) Voluntary winding up
(c) subject to the supervision of the Court

Voluntary Winding up : You can get a general picture from the following steps of winding up which are summarized below (except Voluntary winding up)
a) Issuing a written demand for debt payments to the target company.
b) Present a winding up petition to the court and the company
c) Court hearing for the petition
d) Granting of winding up order by the court
e) Meeting of creditors and other relevant parties
f) Appointment of liquidator.
g) Realization and distribution of company’s assets to the creditors
h) Realize of duties for liquidator
i) Dissolution of the company.

Procedure to Close Private Limited Company

 

Shutting down a company is a challenging process. However, if you are the owner of an incorporated business in the form of a Private Limited Company, then it is even more so. A Pvt. Ltd. Co. can be shut down in several manners depending upon the requirements of the business owner –

  • Sell the company (if possible);
  • Declare the company ‘defunct’ and shut it down; or
  • ‘Wind up’ and dissolve the company.

Defunct Company

The sections that deal with the closure of companies under the Companies Act 2013 have not yet been notified; hence Section 560, of the Companies Act, 1956, deals with strike off provisions of a defunct company. Any defunct company who wants to strike off its name from the register of Registrar of Company can apply via Form FTE for strike off of its name from the register maintained by ROC. A private limited company may be declared defunct and shut down by petitioning the Registrar of Companies.

This may be done in the following manner –

  • Board Meeting – Two Directors of the company must sign a resolution that resolves to apply to the ROC for the declaration of the company as defunct.
  • Affidavit Two directors of the company must then submit a notarized affidavit which has also been signed by the 2 Directors verifying that the company did business for a period up to date, and has since then discontinued its operations, and has no assets or liabilities.
  • Indemnity Bond – A notarized indemnity bond, duly signed by two Directors, which states that in case of any liabilities on the company, such liabilities will be met fully by the applicants, even after the name of the company is struck off the register of companies must be submitted.
  • Accounting Information – The financial statement of the Company for the most recent year, prepared up to a period which ended one month before the date of application, must be filed by the Company. The statement of accounts submitted must provide a true and fair view of the company’s financial position, and to verify the same, a declaration stating this shall be submitted by a practicing Chartered Accountant.
  • Financial Statement – At least one year from the date of incorporation must have passed before the company petitions the ROC for declaring it as defunct. Audited financial statements for the period in which business has been undertaken must be submitted along with the application. In case any unsecured loans are there, then a waiver letter for the same must be submitted.

If the ROC is satisfied with the application given current laws, then it will strike the name of the company and declare it as defunct. Following the same, a notice in this regard will be published in the official gazette by ROC. Bear in mind that the approval of form FTE will take at least one month from the date of filing to be approved.

Winding up the Company

As per section 270 of the Companies Act 2013, winding up of a company may be either –

(a) By the Tribunal (also known as compulsory winding up); or

(b) Voluntary winding up

Voluntary winding up may be –

  1. Member’s Voluntary winding up.
  2. Creditor’s Voluntary winding up.

Whereas Compulsory winding up may be, in addition to the aforementioned –

  1. Any contributory or contributories
  2. By the central or state govt.
  3. By the registrar of any person authorized by central govt. for that purpose.

In case of voluntary winding up, the process is undertaken without court supervision.

Procedure for Voluntary Winding Up –

  • Board Meeting with 2 Directors is conducted and a resolution consisting of a declaration given by directors that they are of the opinion that the company is under no debt or that it will be able to pay off its debt from the proceeds from sale of its assets is passed.
  • General Meeting is conducted after issuing due notice for proposing the resolution along with the explanatory statement. In case of ordinary majority an Ordinary resolution, or a special resolution in case of 3/4th majority, for the purpose of winding up is passed in the General Meeting. The winding up will start from the date of passing of the resolution.
  • Creditors Meeting is conducted after passing the resolution and if majority creditors are of the opinion that winding up of the company is beneficial for all parties then the company can be wound up voluntarily.
  • Liquidators Account is prepared after winding up of affairs of the company, and the same is audited as well.

After hearing the petition for winding up of the company, the tribunal has the power to dismiss it or to make an interim order as it finds appropriate, or it can choose to appoint the provisional liquidator of the company till the passing of winding up order.

 

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