How to Close a Private Company in India?

Narendra Kumar

19 Oct, 2021

It is a challenging process to shut down a private limited company. There are several ways depending upon the requirement of the business owner to shut down a private company. The ways in which a private company can be shut down:

• If possible sell the company;
• Declare the company ‘Defunct’ and shut it down; or
• ‘Wind up’ and dissolve the company.

Strike off of the Defunct Company

Meaning of Defunct Company:

Section 248 of the Companies Act, 2013^[1] deals with the strike off provisions of a defunct private limited company. Any Defunct Company who want to strike off its name from the register of Registrar of Companies can apply via Form FTE for strike off its name from the register maintained by ROC. Annual filing private limited company may be declared defunct and shut down by petitioning the Registrar of Companies.

Strike off may be done in the following ways:

• Board Meeting – To strike off a company it is necessary that at least two Directors must sign a resolution that resolution should contain that directors resolve to apply to the ROC for the declaration of the private limited company as defunct.
• Affidavit –Director of Producer Company (at least two) must then submit a notarized affidavit which has also been signed by them, that affidavit shall be regarding verifying that the company did business for a period up to date, and had since then discontinued its operations, and has no assets or liabilities.
• Indemnity Bond – An indemnity bond which shall be notarized and duly signed by two directors, and which shall state that any pending liability of the company shall be fully met by the applicant even after the name of the company is struck off the register of companies.
• Accounting Information – The financial statement of the company prepared up to a period which ended one month before the date of application must be filed by the company. The submitted statement of accounts must provide true and fair views of the company’s financial position and to verify the same a declaration by a practicing Chartered Accountant must be submitted.
• Financial Statement – For filing the petition to the ROC for declaring the company as defunct at least one year has been passed after the date of incorporation. The audited financial statement shall also be submitted for the period in which business has been undertaken must be submitted along with the application. In case of unsecured loans, a waiver letter shall be submitted.

If the ROC is satisfied with the given application for strike off the company then it will strike off the name of the company and will declare that company as defunct, and a notice regarding the same shall be published by the ROC in the official gazette. The approval of form FTE takes around one month from the date of filing of the application.

Winding up the Company

As per section 270 of the Companies Act 2013, winding up of a company may be either –

(a) Voluntary winding up; or

(b) By the Tribunal (also known as compulsory winding up)

Voluntary winding up maybe –

1. Member’s Voluntary winding up.
2. Creditor’s Voluntary winding up.

Compulsory winding up may be done in addition to the aforementioned –

1. Any contributor or contributors
2. By the central or state govt.
3. By the registrar of any person authorized by central govt. for that purpose.

In the case of voluntary winding up, the process is undertaken without court supervision.

Procedure for Voluntary Winding-up Private Ltd Company

• A Board Meeting shall be conducted in which at least two directors need to be present and a resolution shall be passed regarding declaration given by the directors of the company that company is under no debt or that it will pay its debts from the sale proceed of its asset.
• After issuing a due notice and an explanatory statement a general meeting shall be conducted for proposing a resolution. For the purpose of winding up a company in general meeting with an ordinary majority, an ordinary resolution shall be passed and in case of the 3/4^th majority, a special resolution shall be passed.  The winding-up will start from the date on which resolution has been passed.
• After passing of the resolution in General Meeting a Creditors Meeting shall be held and if the majority of the creditors are of the opinion that winding up of the company is beneficial for all the parties then the company shall be wound up voluntarily.
• After the winding up of the affairs of the company a Liquidator’s Account shall be prepared and the same shall be audited as well.

The tribunal has the power either to dismiss or to make an interim order after hearing the petition for winding up, or it has also the power to appoint the provisional liquidator of the company till the passing of winding up the order.