Overview on close a private limited company
When a privately limited firm ceases its operations, its shareholders might opt for its dissolution. The procedure to close a private limited company in India is relatively uncomplicated and can be carried out through a series of simple steps.
Initially, the shareholders need to pass a resolution to initiate the winding-up process. This resolution should then be lodged with the Registrar of Companies (ROC). Following the ROC’s endorsement of the resolution, the company is required to make a public announcement about its intention to conclude its operations.
Subsequently, the company should settle all outstanding debts and obligations. Once this aspect is addressed, any remaining assets can be distributed among the shareholders. Lastly, the firm must file a conclusive report with the ROC, along with the submission of all necessary documentation. With the completion of these stages, the company will attain official closure.
What Is a Private Limited Company
A Private Limited Company stands as a distinct business structure within India. This form of company is possessed by stockholders, with shares not publicly tradable on any stock market. The shareholders choose a panel of directors entrusted with the company’s administration, while these directors appoint executives to oversee day-to-day activities. A private limited company necessitates a minimum of seven shareholders and cannot have more than fifty.
Within India, private limited companies are overseen by the Companies Act of 2013. Under this legislation, these entities must submit annual reports to the Registrar of Companies (ROC). Additionally, they must uphold financial records and generate audited financial statements. The ROC must receive both the auditor’s report and financial statements.
Private limited companies must wind up their operations if they are unable to settle their debts. This procedure is governed by the Insolvency and Bankruptcy Code of 2016. In line with this code, the company’s assets are liquidated to satisfy its debts. The returns from this liquidation are disseminated among the creditors based on their claims. Any remaining assets post-debt settlement are divided among the shareholders in accordance with their respective ownership proportions.
There are a few methods to close a private limited company, which we will discuss in this article. So, in this article, we will talk about the following topics:
1. Sell the Company
Selling off a Private Limited Company constitutes a form of voluntary dissolution. This process involves the transfer of the company’s controlling shares, essentially transferring ownership and operational responsibilities. . It’s not an actual winding up, but rather, the ownership and responsibilities are passed to to another person or entity when the major shareholders sell their shares.
2. Compulsory Winding Up
If a company in India, registered under the Companies Act, is found to have engaged in illegal or fraudulent activities, or if it has participated in any actions that support fraudulent or unlawful activities, it can be ordered by the Tribunal to undergo compulsory winding up.
The process of compulsory winding up includes the following stages:
Filing of a petition
The petition can be submitted by any of the following parties:
- The Company itself or
- Trade Creditors of the Company or
- Contributors to the company, whether individuals or entities or
- A combination of the three aforementioned categories or
- The Central or State Government or
- The Registrar of the Companies.
To initiate the petition, Form WIN 1 or WIN 2 should be filled out, and three copies of it need to be submitted. Alongside the petition, an affidavit in Form WIN 3 must also be provided.
Statement of Affairs of the Company
All the documentation accompanying the petition ought to be audited by a certified practicing Chartered Accountant (CA). The summary of the current situation must be submitted using Form WIN 4 in two copies, and this submission needs to be approved by an affidavit in Form WIN 5.
Advertisement for at least 14 days
The Petition needs to be advertised in a daily newspaper for a minimum of 14 consecutive days. The advertisement should be in both the local language (the language spoken in the area) and in English. The advertisement needs to be executed using Form 6
Proceedings of the Tribunal
The Tribunal is set to consider the petition on the scheduled hearing date, allowing both the petitioner and respondent to present objections and responses. The Tribunal has the authority to appoint a provisional liquidator. The order to assign a temporary liquidator must be issued using Form WIN 8. The formal winding-up declaration is documented in Form WIN 11 and includes the following provisions:
- The duty of such persons to submit the complete audited financial records up to the date of the order.
- Specification of the date, time, and location for the Company Liquidator.
- Surrender the assets and related documentation to the Company Liquidator. Once the winding-up order is issued, the Company Liquidator gains control over all company properties, claims, papers, and effects.
- The Company Liquidator is required to present a report to the Tribunal within 60 days from the date of the winding-up order.
- After the company’s affairs are fully concluded, the Company Liquidator needs to seek the Tribunal’s permission to dissolve the company. If the Tribunal finds it appropriate under the circumstances, an order dissolving the company will be issued, resulting in its dissolution from that point onward.
- Within 30 days of the order, the Company Liquidator must provide a copy of the order to the registrar.
If the Tribunal determines that the accounts are accurate and all obligatory requirements are met, the tribunal would pass the dissolution order within 60 days after receiving the application. After the Tribunal’s order, the registrar will publish a notification in the Official Gazette announcing the company’s dissolution.
3. Voluntary Winding Up
Dissolving a company voluntarily involves a series of procedural steps that must be followed in accordance with legal requirements. There are specific mandatory tasks that need to be completed in order to properly close down a company on a voluntary basis. Such voluntary winding-up can occur under the following circumstances:
- When the company, either upon the completion of its predetermined duration or the occurrence of specific events outlined in its articles of association, passes a resolution during a general meeting to initiate the dissolution process.
- When the company, through a special resolution approved by at least 3/4ths of its shareholders, decides to voluntarily wind up. This process begins on the date when the resolution is passed. In this meeting, the company must also appoint a liquidator, a decision that must subsequently be confirmed by a majority of the company’s creditors based on their monetary value.
The voluntary winding-up process encompasses the following stages:
a) The company holds a general meeting and adopts the resolutions as described above. However, it’s essential that a majority of the directors are in agreement with the decision to wind up the company.
b) Consent from trade creditors is also necessary to proceed with the company’s winding-up. Trade creditors must give their consent indicating that they will not hold any claims against the company upon its dissolution.
c) The company is required to create a Declaration of Solvency, which needs to be accepted by its trade creditors. This declaration serves as a testament to the company’s financial stability and credibility.
d) The appointed liquidator takes charge of the winding-up process, overseeing tasks such as assessing assets, properties, and debts. A comprehensive report on these matters is compiled by the liquidator. This report is then presented to a general meeting of the company for approval, culminating in a resolution to dissolve the company. The liquidator must also send a copy of the final accounts and resolutions to the Registrar of Companies (ROC).
e) The Company liquidator proceeds to submit an application to the Tribunal, seeking an order to officially dissolve the company. If the winding-up process is deemed satisfactory, the Tribunal will issue an order of dissolution within 60 days of the application. A duplicate of this final order must be filed with the Registrar of Companies for documentation.
The outlined steps must be formally documented and submitted in a specified manner. Even after the company is dissolved, its name will be restricted from being chosen by any other individual for a duration of 2 years.
The specified format for different forms and the comprehensive process for winding up are provided in the Companies (Winding up) Rules, 2020.
4. Defunct Company Winding Up
Under the provisions of the Companies Act, 2013, a Defunct Company pertains to a company that has achieved the status of a Dormant Company. Such inactive companies are granted specific relaxations by the government due to their lack of financial transactions.
The Companies Act, 2013 has established a protocol for the winding up of a Defunct Company. A Defunct or Dormant Company can be wound up using an expedited process which involves the submission of Form STK-2. Consequently, Form STK-2 is a requisite document for the winding up of a Defunct Company, and no supplementary steps are necessary beyond this. The responsible director, authorized by the company’s board, must appropriately sign the STK-2 form before submitting it to the Registrar of Companies.
For the purpose of this scheme, a defunct company is defined as a company that meets the following criteria:
- Possesses neither assets nor liabilities, and
- Either it hasn’t initiated any business operations after its incorporation or
- Hasn’t engaged in any business activities within the year prior to applying under the Fast Track Exit Scheme (FTE).
Conclusion
Companysuggestion has a group of skilled and well-informed lawyers who can assist you with the steps to close a private limited company. We provides various services to support you in closing your business, such as legal and money-related guidance.
