How Does Closing A Private Limited Company Work?
Closing a Private Limited Company is vital in order to avoid paying unesscessary
charges on compliance and audit.
How to wind up a company?
- The winding up of a company involves a shutdown of all business operations, transactions and selling off all company’s assets to other individuals or entities, to clear off company debts.
- Once the debts have been cleared off, the remaining assets of the company will be shared among shareholders with respect to the capital invested by them.
- The winding up of the company can be executed in two different ways
- Compulsory winding up: The compulsory winding up of a company can be executed by the order of a tribunal or a court, by passing a special resolution made by the directors during the company’s board meeting, which proposes a court intervention. Identically, by filing a petition to a court or a tribunal by any official person of the company, if the company has indulged in any fraudulent/unlawful activities, it can be winded up compulsorily.
- Voluntarily winding up: The company requires a resolution from the directors, to sell off all assets of the company or to transfer the stakes to another entity.
What are the benefits of winding up a company?
Free from debts after liquidation: Once the liquidation process is over, the directors and all company officials are free from all creditor liabilities and pressure.
Avoiding legal action against the company: If the resolution is passed voluntarily by directors, they will neglect legal action taken by the court or the tribunal, and provide a platform to company directors to concentrate on other business opportunities.
Comparingly low cost charged for liquidation: The cost or expenses involved in the liquidation process is relatively low, as charges will be applicable on the sale of assets.
All lease agreements will be cancelled: If any company or entity has entered into a lease for a prescribed time, during the liquidation process, it will terminate all the terms and conditions of the lease. If any penalty has to be paid, it will be deducted from the sale of assets.
Advantages for creditors: After a prolonged struggle, creditors will benefit from the liquidation process as they will be eligible for a default payment, with respect to the proposition of credits given by all creditors.
What are the checklist rules for winding up a company?
- Board meetings should be convened for the approval of winding up a company.
- A notice should be issued in written form for convening a general meeting to pass a resolution on the winding up procedure.
- An appointment of an official liquidator or insolvency professional should be made.
- The income tax department should be acknowledged with respect to the resolution passed at the meeting for voluntary winding up of the company.
- Simultaneously, the No Objection Certificate (NOC) should be obtained from the Income tax department.
- If the creditors are in majority, then the creditors meeting should be conducted to approve the resolution passed in the general meeting; given that creditors are owed 2/3rd of the company debts.
- Before initiating a wind up process, an intimation should be conveyed to the Insolvency and Bankruptcy Board of India (IBBI) within 7 days from the date of approval of the resolution.
- An announcement should be made to the public within 14 days of passing the wind up a resolution in an official gazette, one english newspaper, and one local newspaper, where the registered company has been located.
- The whole winding up the process should be completed within 12 months from the initiation of the liquidation.
How to wind up a private limited company?
Winding up of a private limited company can be done in 3 different ways. They are
- Selling company shares: By selling the majority company shares to another person or entity, the shareholders will avoid the burden of debts. Hence, voting powers, rights, and responsibilities will be laid on the acquired person or the entity.
- Voluntary wind up: Voluntary wind up can be commenced either by special resolution or a resolution taken during a general body meeting. By violating any of the terms and conditions of the memorandum of association (MOA), the winding can be executed. Similarly, due to insufficient financial funds or inability to clear the debts, a company can be winded up.
Procedure for voluntary wind up
- With respect to the companies act, 1961, the resolution of the board meeting is essential to start the winding up process.
- In a special resolution, a majority of 3/4th of the company shareholders should register their vote on the side of winding up the company.
- Similarly, the company’s creditors should approve the resolution made for winding up, without complications.
- The “Declaration of Solvency” should enclose outstanding debts along with the auditor report, regarding total assets of the company and it should be forwarded to the RoC (Registrar of Companies).
- Now the official liquidator will be appointed to perform the winding up process from the date of passing the resolution.
- After the resolution has been passed, the liquidator should open a bank account within a period of one month.
- In any scheduled bank, the liquidator should open a bank account in the name with, the prefix “ the name of the company” followed by “voluntary liquidation”.
- The liquidator will collect all the reliable documents and prepare a report consisting of final accounts and present this in a general meeting for approval. Here, the majority of members should pass this resolution.
- After compiling all the necessary documents, the final report will be sent to the tribunal for reference.
- After examining the credibility of the report, the tribunal will pass a decree for the dissolution of the company.
- A copy of that decree will be forwarded to RoC by the liquidator within 30 days of the order dated.
- Now the RoC will mandate the winding up of the company, and remove the name of that company from the registry.
- Simultaneously, the RoC will publish this order in the official gazette of india.
- Compulsory wind up: Any company registered in India can be compulsorily winded up by theaction of the tribunal or court, if the respective company has indulged in any fraudulent/ unlawful activities. The petition can be filed by
- The company itself
- The Registrar of companies (RoC)
- The creditors of the company
- The central/state governments
- The contributors
Procedure for compulsory wind up
- The petition to the tribunal should be filed along with the statement of affairs, of the disputed company.
- After scrutinizing the credibility of the petition filed, the tribunal may accept or reject the aforesaid petition.
- Here, the liquidator will be appointed by the tribunal itself.
- The liquidator will execute all assets of the company, examine the book of accounts, and compile into a draft/report.
- These reports are to be forwarded to the tribunal after the winding up committee had accepted the same.
Buiznest’s Procedure for Winding Up A Private Limited Company
Declaration To ROC
The statement of accounts must be submitted within a month before the submission of the application to wind up the company. This is a declaration to the Registrar of Companies that the contents of the application are only to be considered, and that the company has no other assets or liabilities.
Within a month of submitting the statement of accounts, the application must be submitted along with the documents mentioned above. Our representatives will guide you through the entire procedure.
It takes at least two to three months to complete the closure of your company, but it could take much longer, depending on the findings of the liquidator appointed.
What are the documents required for the closure of the company?
The documents required for the closure of the company are;
- PAN card of the company
- Certificate of closure of the company’s bank account .
- An indemnity bond, which should be notarized by the directors.
- Latest statement of company accounts.
- Statement of accounts related to all assets and liabilities of the company, audited by Chartered Accountant (CA).
- Proof of approval of the resolution by 3/4th of board members.
- Application for removing the name of the company.
Can the name of a dissolved company be used in the future?
Is there any eligibility criteria for adding a new Director?
How long will it take to close or dissolve a private limited company?
Is it mandatory to inform the registrar about the closure of the company?
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