How to Close a Private Limited Company in India? Winding Up Procedure

Company Closing Procedure

What Is Winding Up?

Any entrepreneur wants his or her business to grow and produce income, but there are a variety of situations in which an entrepreneur may close his or her business. A company’s winding up is a legal process for permanently shutting it down. Winding up is the formal process to shut down a company and cease all the activities that carried on. After the Company winding up the ability of the Business comes to an end and the assets are monitored so that the investor interest is not affected. Any private limited partnership will have both optional and mandatory concepts. Section 361 of the Companies Act, 2013 provides a summary procedure for company closure. The Central Government appoints an Official Liquidator to oversee the liquidation process.

What are the various procedures for closing a Private Limited Company?

Compulsory Winding Up:

Any company registered under the Companies Act, 2013 that performs an illegal act, commits a fraud, or relates in any way to illegal or unlawful acts will be forced to shut down by the Court.

Reasons of winding up:

  • The petition would be filed by the company, any of its shareholders, the registrar of companies, the company’s financing companies, or the state or central government.
  • For five years you haven’t filed an annual return or financial statements with the Registrar of Companies (ROC).
  • If the company is involved in some type of fraud or misconduct.

Voluntary Winding Up:

The board of directors passes a special resolution to wind up the company. A company can voluntarily wind up for a number of reasons, including inability to carry on operations, inability to fulfill financial commitments, or the fact that it was created for a certain period of time and purpose. 

Process of winding up:

  • Make a declaration of the company’s solvency for the payment of outstanding debts.
  • To wind up the company, a Special Resolution is required, with 3/4th of the total Shareholders voted in support of the winding up.
  • We have to file a notice to the registrar for appointing the liquidator within 10 days of passing the resolution.
  • Send notification of the resolution in the official gazette and release in the newspaper within 14 days of it being passed.
  • The liquidator will provide the court a detailed account of how the funds, properties, and services were allocated to all of the investors.
  • The liquidator of the company must also file an application with the Court for a dissolution order. The Tribunal must issue a dissolution order within 60 days of receiving the application if it is satisfied with the winding up. The ROC should get a copy of the final order.

Documents Required for Filing of Form STK-2(Strike off)

A business strike off, also known as dissolving a company, is a low-cost way to close down a company that is still solvent and has no assets. The company ceases to exist until it is removed from the register, and it is no longer able to transfer, make payments, or sell assets. A notification will be issued in the Gazette granting three months’ notice to anyone who is involved in the company’s decision to be struck off. The company will be struck off if no objections are raised during this period.

  • All ITR and Returns Filed with ROC.
  • Statement of Accounts containing assets & liabilities of the Company.
  • PAN Card of the company.
  • Indemnity bond – notarized by the company’s directors.
  • The company’s most frequent bank statement of accounts.
  • Any company must file an affidavit in Form STK 4.
  • 75 percent of the members would agree on a special resolution.

Is it necessary to file ROC Returns and the ITR of the Company before its winding up?

Our recommendation is to file all outstanding annual returns and balance sheets, as failure to do so is a criminal offence with serious consequences. At the time of submitting STK-2 form for dissolving the company you need to attach any documents which are related to company compliance. Before you can close your account, you must pay all outstanding taxes and file an ITR. However, if the company did not get off of the market or if no bank account was ever established, this would be avoided at your own cost and expense.

What can be done in case the company director has been disqualified?

A director’s disqualification makes him ineligible to hold the position of director for even a second. Every limited company must have 2 directors whatever maybe the situation is. If a director’s disqualification lowers the legal limit of two directors to one, the only option is to call an EGM and appoint a new director to replace the disqualified director. The Companies Act gives the company six months to fill the vacancies in the board of directors. The company will close in the usual manner once the directorship has been settled.

How much time does it require to wind up the company?

After filing the stakeholder form the government may take 7 to 14 days to receive the application from the date of submission. Once after the approval the information will be sent to the commissioner of income tax department. If there is any objection the ROC will proceed further by publishing the name of the companies who have applied for winding up of the company through the website by inviting their opposition comment to wind up the company. If ROC finds there is no objection to wind up the company. The whole process takes around 90 to 150 days.

Advantages of Private Company Closure

  • When the liquidation process is completed, the company’s directors and managers are relieved of all loans, liabilities, loan accounts, and pressure.
  • Closing a company will relieve you of unnecessary IT responsibilities.
  • It protects you from penalties for non-compliance.
  • Since pricing may be used to sell the company’s assets, the price or responsibilities required in the liquidation process are relatively small.

Reasons behind a Company’s Dissolution

  • Possible to avoid compliance

The Companies Act creates a corporate entity and a legal entity known as a company. As a result, a business must follow current compliance over its lifecycle. The winding up process is used to close an inactive company to avoid legal requirements.

  • Quick to Close

A company can be closed in 3 to 6 months by filing an application with the MCA. The procedure may be completed in the comfort of your own place. As a result, Taxxinn makes the method of closing a company simple and straightforward.

  • Fines may be reduced

If a company fails to register its compliance on time, it faces fines and penalties, as well as the directors’ ability to form new companies. As a result, legally winding up an inactive company is preferred to avoiding further penalties or liabilities.

  • Budget-friendly

It could be more cost-effective to terminate a company and re-incorporate when the time comes, as compared to the costs of maintaining compliance with an inactive company.

How can we help you?

For further concerns about private limited company Winding Up, kindly contact us. Our experts at Taxxinn will help you explain step-by-step instructions on how to dissolve a business. We help you get your winding up done at low cost while providing high-quality service. We have the best experts in place who will help you get your requirements done in a very short span of time. Get in touch with us right away to get things started.