Winding Up 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.

Sell the Company.
Compulsory Winding Up.
Voluntary Winding Up.
Defunct Company Winding Up.

Sell the Company

To sell off a Private Limited Company is also a kind of voluntary winding up. It can be done by selling shares of the company (selling the majority shareholding of the company). Technically speaking it is not an actual winding up but the stakes are transferred to another person or entity and the majority shareholders are discharged of their stocks and responsibilities.

Compulsory Winding Up

Any company registered in India under the Companies Act, which did an unlawful act, fraudulent act or even if they contributed any action in some fraudulent or unlawful activities then such company would be wound up compulsorily by the Tribunal.

Procedure:-

Petition will be filed

The petition will be filed by the following:

• The Company or
• The Trade Creditors of the Company or.
• Any contributory or Contributors to the company or
• The Central or State Government or
• By the Registrar of the Companies.

Petition shall be accompanied together with the Statement of Affairs of the Company

All the documents accompanied by petition should be audited by a practicing CA and the opinion given by the Auditor on the Financial Statement must be unqualified.

Advertisement for at least 14 days

The Petition should be Advertised in a daily journal at least for 14 days and the language of the advertisement should be in the Regional language (Regional Language of the area) and in English. The Advertisement must be carried out under Form 6.

Proceedings of the Tribunal

Form 11 will be required for the order of winding up the company.

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

If the tribunal finds the accounts are in order and all the required compliance have been satisfied, the tribunal would pass the order for dissolving the company within a period 60 days of receiving the application. After the order has been passed by the tribunal, the registrar will then issue a notice to the Official Gazette stating that such company is dissolved.

Voluntary Winding Up

Winding up a company voluntarily require long procedural compliance to follow. There are certain mandatory requirements which have to be completed to close down a company voluntarily.

Procedure:-

As per the Companies Act 2013, BD (Board Resolution) is required to wind up the company voluntarily. However, the majority directors must agree for winding up.
• Also, a Special Resolution is required to wind up of the company where 3/4th the total Shareholders must cast their vote in favor of winding up the company.
• The consent of the Trade Creditors is also required to wind up the company. Trade Creditors has to give their approval that they don’t have any obligation if the company gets wound up.
• The Company has to make a Declaration of Solvency and the same must be accepted by the trade creditors of the company. The Company must show the Company’s credibility in Declaration of Solvency.

The liquidator so appointed will make a report of the assets, liabilities, reserves, capital etc..

All the above-mentioned procedures shall be presented and filed in a prescribed form and even after the company gets wound up then also company’s name shall be prohibited for 2 years to be taken by any other applicant.

Defunct Company Winding Up

As per the Companies Act, 2013, a Defunct Company is a company which has gained the status of a Dormant Company. The government provides certain relief to such defunct or dormant company because there are no financial transactions undertaken by dormant companies.

The Companies Act, 2013 laid down the procedure for winding up a Defunct Company. A Defunct or Dormant Company can be wind up with a fast-track procedure which requires submission of the STK-2 form. Hence, Form STK-2 is required in order to wind up a Defunct Company and there is no additional procedure for that. The form STK-2 needs to be filled with the Registrar of Companies and the same needs to be duly signed by the director of the company authorized by its board to do so.

For the purpose of this scheme, a defunct company refers to a company which has

• No asset and no liability, and
• Which has not commenced any business activity after its incorporation or
• Has not been carrying on any business activities since last one year prior to making an application under FTE (Fast Track Exit Scheme).