How to Close (Winding up) a Private Limited Company in India

Winding up of a company is a process through which the life of the company is concluded, and its property is realised for the benefit of its creditors and members. The entire process of winding up is administered by the liquidator. Private Limited Company can be closed in 3 ways. Selling of the Company, Voluntary Winding Up and Compulsory Winding up.

Shutting down a company is a long and complicated procedure. A private limited company can be closed down in various manners depending on the requirement of the owner.

  • The owner can sell the company
  • Can close down the company by declaring the company 'Defunct'(Striking of the company)
  • Winding up or dissolving the company

Selling of Private Limited Company

A company can be sold by transferring the majority shares to the person best suited for the company. The procedure of eventually winds up the company, but only the majority of the shares are transferred with the responsibility of stocks.

Declaring the company Defunct

Any company that wants to strike off its name from the registrar of the company can declare itself defunct by applying Form FTE  and then the company can be shut down by the registrar of the company.

Winding Up of Private Limited Company

Winding up of the private limited company is necessary in the case where the company needs to conclude its business or due to bankruptcy. The winding up method can be initiated intentionally by the shareholders or creditors, or it can also be done on the order of the tribunal (Compulsory Winding up ).

If the company is not dissolved and the assets are not collected as per the legal proceedings, the company is considered in operation, and hence the directors will be liable for completing all the compliances associated with the private limited company.

Reasons for Winding up Private limited Company

Based on the following ground the members or creditors of the company can file for winding up of the company:

  1. In case the company has defaulted in filing the financial statement with the registrar of the companies (MCA) for the last five years.
  2. If the registrar of the companies find that the company is involved in any fraudulent and unlawful affairs.
  3. If the company administration is in gridlock and there is no possible solution the tribunal can arrange for winding up of the company.
  4. If the company is unable to pay debts to its creditors
Note: Winding up on the ground of inability to pay debt must be filed with a significant amount of information about the resources of the company and its future liabilities.

Procedure for Winding Up Private limited Company

Procedure to liquidate or wound up the private limited company can be done voluntarily, or the process can be initiated by debtors application to the court or in certain cases if the contractual obligation by the company has not been fulfilled.

The entire procedure of bringing an end to a company through a lawful procedure has been broken down into two stages

1. Winding Up

This the first stage in the closing of a private limited company and this process first assets are realised so that liabilities are paid off and if any surplus is left in then it has to be distributed amongst the members of the private company.

2. Dissolution

Dissolution of the company is a way through which you can end the company as a separate entity. The process closes down the entire company down after realising all the assets and distributing surplus within the shareholders of a private limited company.

Note: Procedure of winding up a company is similar for every company Incorporated in India.

Modes of Winding up Private Limited Company

A private limited company can be wound up through 3 modes:

1. Voluntary Winding Up

Voluntary winding up takes place when the members of the company come up with a mutual decision to end the company affairs. The process of voluntary winding up can be completed by passing a special resolution stating the winding up of the company; the resolution can be moved in the general meeting.

 

Procedure for Voluntary Winding Up

  1. Conduct board meeting with 2 directors and then pass a resolution. The resolution should contain the opinion of the directors regarding payment of the debt.
  2. In general, meeting pass a resolution for winding up of the company that should have an ordinary majority but if the winding up is filed in special resolution then by 3/4 majority.
  3. A meeting with creditors to also be set up where if a majority of them are of the opinion that winding up is beneficial the process can be completed voluntarily.
  4. Appointment of liquidator to be applied for within 10 days of the notice.
  5. Wind up the affairs of the company and prepare  the liquidator account

2. Compulsory Winding up

As per the Companies Act 2013, Any Company, who did any fraudulent act or unlawful act or even if they contributed some action in some fraudulent or illegal act then that company shall be Compulsorily wound up by the Tribunal.

Following is the procedure for compulsory Winding Up

Step - 1: Filing of the application

The following parties will file a petition

  • Company or
  • Creditors of the Company or
  • Any Contributors or contributory of the company or
  • Central Government or State Government or
  • By the Registrar or

Step - 2: Petition shall be accompanied with Statement of Affairs

While filing the documents under Form 4. The Chartered Accountant should audit all the documents and Auditor should give an Unqualified opinion for the Financial Statement.

Step - 3:  Advertisement for at least 14 days

The Petition should be Advertised in a daily newspaper, and the language of the advertisement should be in English and Regional Languages in the area. The Advertisement must be carried out under Form 6

Step - 4:  Proceedings in the Tribunal

Form 11 will be required for the order of winding up the company, and the following prescribed duties need to be followed.

  1. Submit the complete audited books of accounts up to the date of the order.
  2. Provide the date, time and place for the Company Liquidator
  3. Surrender the assets and the documents of the assets. 

3. Winding up of a Company by the Tribunal

There are times when a private limited company requires to wind up its operations, but the directors or creditors have not come to the same conclusion that the company needs to be dissolved in order to pay all its debts. Following are the reasons for winding up a private limited company.

  1. The company is not able to pay its debts
  2. The concerned company has by special resolution decided to be wound up by a Tribunal
  3. The concerned company has acted against the laws of integrity and sovereignty of India, decency, public order and morality.
  4. The Tribunal has ordered the winding up of the company.
  5. The Tribunal considers that the affairs of the concerned company are fraudulent or unlawful or the persons who are associated with the concerned company are found guilty of misfeasance, fraud or misconduct of any sort.
  6. The concerned company has a record of default in filing with the Registrar the annual returns and financial statements for five consecutive years.
  7. The Tribunal is of the opinion that it would be fair and equitable if the company is wound up.

In Certain Circumstances

If the Company has no debt or Creditors

If the company has no debt or creditor, then it need not follow the winding up procedure it can directly apply for striking off of the company from the rooster present with MCA. This is the fast track procedure and is only applicable if the company has no creditors to be paid.


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