What is the Strike off or Closure of a Company?
Running a business comes with its own challenges. Sometimes when things do not work out a business may have to be shut down. There can be several reasons to close or wind up the company. Here are four ways in which a private limited company can be closed.
Modes of Winding Up Under the Companies Act
- Compulsory Strike off - By the Court
- Voluntary Strike off by the Company
- Defunct Company Winding Up
Companies who cannot file for voluntarily strike off
The following companies cannot file for voluntarily strike off with ROC
- Listed Companies
- Companies delisted due to non-compliance of listing regulations or listing agreement
- Vanishing companies
- Companies where inspection or investigation is ordered
- Companies against which prosecution or offence is pending in court
- Companies having charges which are pending for satisfaction.
- Companies registered u/s 25 or 8 of companies act
Voluntary Strike off by the Company
The company might wish to close the company due to various reasons. The company can file an application to the Registrar of Companies (ROC) in form STK-2 after closing the bank account and paying the liabilities
- Held Board Meeting to decide for voluntary strike off and pass the special resolution
- Conduct EGM and pass the special resolution
- File the resolutions passed in MGT 14 with 30 days of passing special resolution
- Statement of Accounts in STK-8 should be drawn (not less than 30 days from the date of application) and should be certified by CA
- File Form STK-2 along with the attachments
Documents Required for Voluntary Winding up of a Company
For the voluntary winding up of a company, the following documents are required:
- Special Resolution (Form-26): A document proving the company's decision to wind up.
- Declaration of Solvency (Form 107): A statement showing the company can pay its debts.
- Directors' Affidavit: A sworn statement verifying financial documents like the auditor’s report and accounts up to the most recent date before declaring solvency.
- Liquidator's Consent: Agreement from the appointed liquidator to undertake the winding-up process.
- Notice of Winding Up Resolution: A published notice in the Official Gazette about the company's decision to wind up.
- Notice of Liquidator Appointment: A published notice in the Official Gazette about the liquidator's appointment.
- Preliminary Liquidator's Report: An initial report from the liquidator outlining the winding-up plan.
- Final Liquidator's Report and Accounts: The liquidator's comprehensive final report and financial statements were presented at the last shareholders' meeting.
- Notice of Final Meeting: Announcement of the company's conclusive gathering.
- Meeting Return: Documentation of the final report, accounts, and meeting minutes to be submitted to the company registration office.
Compulsory Strike off - By the Court
The compulsory winding up of a private limited company is a legal process overseen by the tribunal. This action is typically initiated for several reasons, including:
- Unpaid Debts: The company fails to settle its debts, prompting creditors to seek legal redress through winding up.
- Special Resolution: The company's members pass a special resolution acknowledging the need to dissolve the company due to insurmountable challenges or other reasons.
- Unlawful Acts: The company or its management engages in illegal activities, compromising its integrity and legal standing.
- Fraud and Misconduct: Involvement in fraudulent practices or serious misconduct tarnishes the company's reputation and operational legality.
- Non-compliance with ROC Filings: Failure to file annual returns or financial statements with the Registrar of Companies (ROC) for five consecutive years signals operational dysfunction and possible abandonment.
- Tribunal's Discretion: The tribunal, upon reviewing the company's situation, may determine that winding up is in the best interest of the public, creditors, and other stakeholders.
How Long Does It Take to Wind Up a Business?
The duration for winding up a business can vary significantly based on several factors. Initially, preparing for liquidation, which involves settling debts, notifying creditors, and completing necessary legal formalities, might take about 2 to 3 months, influenced by the business’s complexity and size.
Following the commencement of the liquidation phase, liquidating assets, distributing proceeds to creditors, and completing final legal requirements can extend from a few months to potentially more than a year.
Government Fee for company closure
Form STK-2 should be accompanied by a government fee of Rs 10,000. It needs to be payable at the time of uploading STK-2