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Closing your Private Limited Company

If your business is not running properly in a private limited company, or you are facing continuous losses in your business, it is better to close your private limited company and start a new journey. Private Limited company also needs to be shut down when there are no exchanges or directors of the company not ready to start its operations.

There are 4 ways by which private limited company business comes to an end –

  1. Sell the company
  2. Voluntary winding up
  3. Compulsory winding up
  4. Defunct company winding up

Sell The Company

One way of voluntarily winding up the company is selling the company i.e. Selling shares of the company to some other party. A company can be sold by selling the majority of shares of the company to any other party. Although it is technically not a winding up, the stakes are transferred to another person or entity and the majority shareholders are released from their stocks and responsibilities.

The list of Documents Required for Company Closure

  • Consent of the Company's creditors
  • Indemnity Bond duly notarized by all directors (in Form STK 3)
  • A certified statement of liabilities is prepared by a chartered accountant that details the company's assets and liabilities.
  • CTC of Special Resolution officially signed by each of the company's directors
  • Affidavits signed by all of the company's directors in Form STK 4
  • PAN and Aadhaar card of directors
  • Digital Signature of the Directors
  • Letter of Consent and Affidavit of the Director
  • A statement regarding any pending legal action taken against the company

What are the reasons for closing a private limited company?

Members and creditors of the company may apply for the company's closure for the following reasons:

  1. If the ROC finds that the company has engaged in any fraudulent or unethical conduct.
  2. If the company has been failed to file financial statements for the last five years.
  3. If a company is unable to pay its creditors.
  4. If the management of the Company is gridlock and there is no prospect of winding up.

Voluntary Winding Up

The Voluntary winding up of a private limited company is a long procedure. Voluntary winding up of a company means winding up of a company by its members voluntarily. Winding up of a company can be done voluntarily by the members, if –

  • The company passes a special resolution to wind up the company.
  • The company passes a resolution in the general meeting to wind up voluntarily as a result of the expiry of the period of its duration as per articles of association, or an event occurred with respect to which articles of association declare that the company should be dissolved.

Procedure Of Voluntarily Winding Up Of Private Limited Company

The procedure of voluntarily winding up of a private limited company is as follows –

  1. Step 1 – Firstly, conduct a board meeting with 2 directors to pass a resolution along with the declaration that the company has no debts and the company is in a position to pay its creditors after selling the company’s assets.
  2. Step 2 – In the second step, the company issues a written notice to call a general meeting along with an explanatory statement proposing the resolution.
  3. Step 3 – In the third step, the company passes the ordinary resolution in the general meeting for the purpose of winding up by the ordinary majority or 3/4th of the majority by passing the special resolution.
  4. Step 4 – After passing the special resolution in the third step, conduct a meeting of creditors. If the majority of the creditors are having the same opinion that winding up of a company is beneficial for all the parties, the company will be winded voluntarily.
  5. Step 5 – After taking the decision in the creditors meeting to wind up the company, file a notice with the registrar to appoint a liquidator within 10 days after the passing the resolution.
  6. Step 6 – In the sixth step, the company has to give notice of the resolution in the official gazette and also advertise the same in the newspaper within 14 days after the passing of the resolution.
  7. Step 7 – In the 7th step, the company must file certified copies of resolutions (ordinary or special) passed within 30 days of the general meeting.
  8. Step 8 – In the 8th step, wind up the affairs of the company, prepare the liquidator account, and auditors will audit the same.
  9. Step 9 – In the 9th step, the company conducts a general meeting.
  10. Step 10 – In the 10th step, the company passes a special resolution in the general meeting to dispose of books and all other necessary documents after winding up the company's affairs.
  11. Step 11 – In the 11th step, the company submits an account copy as well as an application to the tribunal within 15 days of the first general meeting to pass an order for dissolution.
  12. Step 12 – In the 12th step, If a tribunal found that all your accounts are in order and the company has followed all the necessary compliance's, the tribunal will pass the order for dissolving the company within 60 days of receiving the application.
  13. Step 13 – The appointed liquidator submits a copy of the order with the registrar in step - 13.
  14. Step 14 – In step – 14, the registrar publish a notice on the official gazette declaring that the company is dissolved after receiving the order passed by the tribunal.

Compulsory Winding Up

According to the companies act 2013, a company has done any fraudulent or illegal activity or involvement in any unlawful or illegal act. The company will be mandatory wind up by the tribunal.

Filing of a petition

The petition will be filed by the following:

  • The Company, or
  • Company trade creditors, or
  • Any contributory or Contributors to the company or
  • Any of the three categories mentioned above
  • The Central or State Government or
  • By the Companies registrar

The petition should be submitted in triplicate in Form WIN 1 or WIN 2. A petition shall be accompanied by an affidavit prepared in accordance with Form WIN 3.

Procedure For Compulsory Winding Up The Private Limited Company

The steps in compulsory winding up the private limited company are as follows –

  • Filing of petition
  • The Petition followed by the statement of affairs in form WIN4 in duplicate.
  • Petition to be advertised for at least 14 days
  • Proceedings in the tribunal.
  1. Filing of petition – Petition will be filed by the following parties -
    1. Company
    2. Central government or state government
    3. Creditors of the company
    4. Registrar
    5. Any contributions or contributory of the company.
  2. The Petition followed by the statement of affairs – Petition should be accompanied by a statement of affairs in form-4. All the documents filed under form-4 should be audited by the chartered accountant, and the auditor should give a qualified opinion regarding the financial statements.
  3. Advertise for at least 14 days – The petition should be advertised in the daily newspaper in both languages – English language as well as in the regional language of the area. Form-6 is filed for advertisement purposes.
  4. Proceedings in the tribunal – Form-11 is needed in order to wind up the business, and footnotes contain the prescribed duties –
    1. Submit the complete updated audited books of accounts.
    2. Provide the date, place & time for the company liquidator.
    3. Surrender the assets and their documents.

Defunct Pvt. Ltd. Company Winding Up

STK-2 form is used to wind up defunct Pvt. Ltd. company. Defunct companies are those companies where no financial transactions take place. It is also called dormant companies. 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 that has:

  • Not having any asset or liability, and
  • not engaged in any business activity after its incorporation, or
  • Not engaged in any business activity for the previous year before applying FTE (Fast Track Exit Scheme).

Close Private Limited Company FAQ’S

The 4 ways by which private limited company business comes to an end are as follows –
  • Sell the company
  • Voluntary winding up
  • Compulsory winding up
  • Defunct company winding up
If you wish to close a business by converting it to an LLP, you must apply to the ROC to remove its name from the Companies' Registrar.
The Closure is the recommended course of action if the business is not operating normally:
  1. Reduces annual compliance costs.
  2. There is no risk of non-compliance.
  3. There is no chance of hefty fines and prosecutions.
  4. No risk of getting into default.
After filing the application with the Ministry of Corporate Affairs, it takes around 90 days for the Company's records to be deleted from the MCA. After RoC approves the strike-off, the notice of strike-off is published on its website for third-party objections or representations.
In the Official Gazette, the RoC will publish a list of companies that have been struck off. From the date of publication of the notification in the Official Gazette, the Company in fast-track exit mode will be considered closed.
Closing documentation must be filed within 30 days of the date the assets and liabilities statement is signed.
It is important to notify the Registrar of a Private Limited Company's closure to update the MCA data and relieve the Company of all legal obligations.
Fast Track Exit is a scheme developed by the Ministry of Corporate Affairs (MCA) to enable inactive businesses to wind up and strike their names off the MCA register with fewer formalities.
If the Company is struck off due to its default, it must apply to the National Company Law Tribunal to change its status from strike off to active by providing valid reasons for the mistake.
The following conditions can lead to the company being struck off:
  • When a company failed to begin operations within one year of its formation.
  • When a corporation has not carried on any business or operation for a period of two consecutive financial years and has not filed an application for dormancy during that period.

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