Winding Up A Company

WINDING UP A COMPANY

Description: Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.

STK-2 Form: The is empowered to close a company that has not started its operations or if started, has become defunct and has been inactive for over two years. The application of such companies are filed in the prescribed form STK-2, the government fee payable on the STK-2 Form is Rs. 10,000/-

 

Various Methods to Close a Private Limited Company:

• Striking off the Company by ROC by declaring it as Defunct: When a Company is inactive for over two years or could not commence its business operations within one year of its incorporation, the easiest method is to make an application for striking off the name of the company by filing an application in Form STK-2 U/s 248 of the Companies Act.
• Voluntary Winding Up of Company: With the approval of 3/4 shareholders, the company can make an application to NCLT for its voluntary winding up. Under this process, an Insolvency Professional is engaged in dissolving the company’s assets and paying the lawful claims. On the recommendations of the IRP, the NCLT passes the order for the winding up.
• Compulsory Winding Up of Company By NCLT: On an application by the creditors, ROC or the Central Government, the NCLT may start the compulsory winding-up of the company. An Insolvency Professional is appointed to dispose of the assets and pay the liabilities of the company. After the dissolution by RP is complete, the NCLT makes an order of winding up.

Checklist for filing STK-2 Application for Company Striking off

Step:1: The company must be defunct or inactive under section 248; there are three situations in which a defunct or inactive company can be struck off; check the appropriate section under which the application is to be filed.

Step:2: Shareholder Consent: The company can file the STK-2 application only when the shareholders of the company adopt a special resolution. A minimum of 75% shareholders vote is necessary for passing a special resolution.

Step:3: Pay all Government Dues: Before the decision to close the company is made, ensure that all government dues such as GST, Income Tax, PF, ESIC or any other company’s liability towards the government are fully paid.

Step:4: Close Bank Accounts: The company’s bank accounts need to be closed, and you should obtain a complete bank statement and the Bank Closure letter from the banker. These documents are filed along with STK-2 Form.

Step:5: No Litigation: There should not be any pending litigation for the applicant company with the state government, central government, or agencies. Also, check that no Income Tax or GST Assessment is pending.:

Step:6: CA Certification: A Chartered Accountant must attest to the Statement of Accounts showing NIL assets and liabilities in practice. The date of the statement should be within 30 days on which Form 24 is being filed.

Step:7: Check DIN & DSC Status: Every year DIR-3(KYC) must be filed to keep the DIN active; check the DIN status; if the KYC has not been filed, please do file the DIN KYC. As the application for striking off the company is filed using Digital Signature, check if the DSC is valid for the partners; if not, Go for DSC Renewal.

Types of Company windup

A company can be wound up in two different ways-

1. Voluntary winding up of a Company
2. Compulsory winding up of a company
3. Voluntary Winding up of a Company: The Winding up of a Company can be done voluntarily by the members of the Company, if :

The company passes a special resolution for winding up the Company.

The Company in general meeting passes a resolution which requires a company to wind up voluntarily as a result of the expiry of the period of its duration, any as per the Articles of Association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.

Process for Voluntary winding up of a Company:

• Convene a board meeting with the Directors in which a resolution should be passed with a declaration by the directors that they have made an enquiry in the affairs of the Company and the company no debts or the Company will pay from the proceeds of the assets sold in the voluntary wind up of the company.
• Notices should be issued in writing to call for the general meeting of the Company proposing the resolutions, with a suitable explanatory statement.
• Pass the ordinary resolution for winding up of the Company in the generally meeting by ordinary majority or special resolution by 3/4 majority. The Winding up of the Company shall commence from the date of passing the resolution.
• A meeting of the creditors should be conducted on the same day or the next day of passing the resolution regarding winding up. If the 2/3rd value of the creditors are of the opinion that it is in interest of all parties to windup the Company, the Company can wound up voluntarily.
• Within 10 days of passing the resolution for company winding up, a notice for appointment of liquidator must be filed with the registrar.
• Within 30 days of the general meeting for the winding up the certified copies of the ordinary or special resolution passed in the general meeting for the winding up of the Company.
• The affairs of the company need to be wind up and prepare the liquidators account of the Winding up account and to get it audited.
• Call for the final General meeting of the Company.
• A special resolution should be passed for the disposal of the books and the papers of the company when the affairs of the company are completely wound up and it is about to be dissolved.
• Within two weeks of the general meeting of the Company, file a copy of the accounts and file and the application to the tribunal for passing an order for the dissolution of the company.
• The tribunal shall pass an order dissolving the company within 60 days of receiving the application.
• The company liquidator is required to file a copy of the order with the registrar.
• The registrar will then on receiving the copy of the order passed by the Tribunal then publish a notice in the official gazette that the Company is dissolved.

2. Compulsory winding up of a Private Limited Company:

Tribunal is responsible for this kind of wind up of Companies.

• The Tribunal is of the view that the company should windup.
• If the company is involved in fraudulent acts or misconduct
• When a special resolution is passed fort winding up
• Unpaid debts of a Company
• An unlawful act by a company or the management of the Company
• If the annual returns or financial statements are not filed for five consecutive years with the ROC

The Process of Company Closure:

Step:1: Calling of EGM of the shareholders: To file the application in STK-2 Form for Company Closure to the ROC, a meeting of the company’s shareholders must be called in to decide about the closure with at least 75% voting rights.

Step:2: Surrender of Registration & Licenses: If the company had registered under GST or obtained licenses under any government department, the same need to be surrendered before an application for closure is filed by the company.

Step:3: Bank A/c Closure & Prepare Financial Statement: The bank accounts of the company must be closed, and a certificate from the banker is needed. Prepare a financial statement with Nil Assets and Liabilities, A Practicing CA or Auditor shall certify it.

Step:4: Affidavit & Indemnity Bond of All Directors: All directors and shareholders have to swear an affidavit that all information and documents being filed are true and correct and an indemnity bond that the directors shall pay in person if any liability comes up.

Step:5: Filing of STK-2 Form: Check that the company has filed all pending ITR & ROC Return to the ROC. The application for closure of the company filed online with a digital signature in Form STK-2 with the government fee of Rs. 10,000/-

Documents Required for the Winding up of company: As per the provisions of the Ministry of Corporate Affairs (MCA) & Registrars of Companies (ROC), a private limited company can shut down as per below 2 categories:

Striking of the name in fast track exit:

• Copy of Board Regulation showing authorization given for filing this application.
• Private Limited Company Incorporation Certificate.
• Brief Description of the Main Object in Company MOA.
• Any litigation pending before tribunal.
• CA’s audit report on the company’s accounts, assets and liabilities.
• Most recent statements of the Company’s Accounts, Assets, Liabilities.

Removing of name form ROC Records:

• Indemnity Bond (to be given individually by the company directors).
• Affidavit of the company directors as per annex-A.
• NOC Copy from concerned Administrative Body/Ministry/Govt.
• Copy of relevant order for delisting from concerned stock exchange.

Other Documents:

• All ITR and Returns Filed with ROC.
• Board Resolution Authorizing the Closure.
• Affidavit from all the Directors.
• Indemnity Bond from all the Directors.
• Consent of 75% of Shareholder.
• Bank Closure Statement.
• CA Certified Statement of Accounts.
• Identity and Current Address Proof of partners.

Stamp Paper & Notary

All the company directors have to file an affidavit and indemnity bond prepared on the appropriate value of the Non-Judicial Stamp paper. The affidavits and the indemnity bonds are required to be witnessed/attested by a Notary Public.

The stamp duty may differ from state to state; hence you should check the appropriate stamp paper value from the local vendors; generally, Rs 100 stamp paper is applicable for indemnity bond and Rs. 50-100 is applicable on affidavits.

The Notary attestation is an activity where the deponent of the affidavit of the person making the indemnity bond signs in the presence of the Notary. Hence, you should take the affidavits and indemnity bond after purchasing the stamp paper to the local Notary’s office for attestation.