Are you suffering back-to-back losses from several years and juggling to run your private company’s business?
Has COVID-19 forced you to abruptly close your business?
Has your private company not undertaken any business activity since its incorporation and remain inactive?
If the answer to any of the above questions is ‘yes’, then you may think of shutting down your private company. In general, people just leave the company as it is when they stop doing business and stop doing all the filings and audits. However, this is not the right way. The Companies Act has prescribed a detailed procedure of closure of a company and if the company is not closed in the same manner and the company is left without any filings and audits then directors may attract disqualification and the company and directors shall be liable to fine.
We will help you out in providing available options to close your private company and manner of doing the same:
1. Options to close a Company
Option 1: Sell the private company
- It is one of the traditional and easiest methods to close a private company.
- In this method, the Company is transferred to another person by merely transfering shareholding and directorship. Acquiring person buy the shares of the company and appoints himself as directors of the company.
- This method is generally adopted when someone needs an entity with some experience. Buying an already incorporated company qualifies the buyer to bid in tenders which requires a minimum period of experience.
Option 2: Voluntary removal of name of company from register of company
- The voluntary removal of names from the register of companies can be made through applying to the Registrar for striking off the name of a company from the register of companies.
- The premise for striking off the name of a private company can be:
- Discontinuation of business;
- Non-Commencement of business;
- Change in mode of doing a business such as running a business in individual name instead of company
Option 3: Voluntary Winding up of Company
- Voluntary Winding up a court supervision process wherein the company is closed voluntarily on the request of creditors or shareholders.
- Under winding up, the company is closed down and all its assets are distributed to the creditors and shareholders under the supervision of the official liquidator.
- Voluntary winding up is usually done when a company is unable to pay its debts or continue its business operations.
- This process involves appointing a liquidator to collect and distribute the company’s assets among its creditors and shareholders.
Option 4: Compulsory Winding up of Company
- There are certain cases where the Government has to intervene in a company and considering its activities have to move for winding up of the company.
- Compulsory winding up can be done by filing a petition before the tribunal by any of the following persons:
- By Company
- By contributory or contributors;
- By Registrar
- By The Central or state government.
Option 5: Convert Company to Dormant Company
- This option does not represent closure of a company rather it changes the status of the company so that least compliances are required.
In this article, voluntary removal of name of company from Register of companies is discussed in details for ease of understanding :
2. Provisions of Voluntary removal of name of company
- As per Section 248(2) of Companies Act, 2013, a company may voluntarily apply for removal of name from register of Companies.
- Application of removal of name from register of companies can be filed by the company for any of following reasons:
- The company has failed to commence its business within 1 year of its incorporation;
- The company is not carrying on any business or operation for 2 immediately preceding financial years and company has not applied to obtain status of dormant company.
- The subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within 180 days of its incorporation; or
- As per physical verification, The company is not carrying on any business or operations
3. Restriction on making applications for Removal of Name
- As per Section 249 of the Companies Act, 2013, an application for removal of name u/s 248(2) of companies act, 2013 can’t be made if any of the following event has occurred in last 3 months:
- The Company has changed its name or shifted its registered office from one State to another;
- The Company has made a disposal for value of property or rights held by it, immediately before cesser of trade or otherwise carrying on of business, for the purpose of disposal for gain in the normal course of trading or otherwise carrying on of business;
- The Company has engaged in any other activity except the one which is necessary or expedient for the purpose of making an application under that section, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
- The Company has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
- The Company is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016
- If a company files an application in violation of these restrictions then it shall be punishable with fine which may extend to INR 1,00,000
- N bv10+
- Application for removal of name shall be withdrawn by the company or rejected by the Registrar as soon as conditions mentioned above are brought to his notice.
4. Procedure of Removal of Name from Register of Companies
Following is the process of applying for striking off the name of company from register of companies:
4.1 Holding board meetings and general meetings of company
- In pursuant of Section 248(2) of Companies Act, 2013, The Company is first required to seek approval of board of directors to proceed for removal of name of company from Register of Companies.
- Then, The company is required to pass a special resolution at General meeting or Consent of 75% members (in terms of paid up share capital) is required to be sought.
4.2 Obtain No objection certificate from Appropriate Regulatory Authority
- A Company looking for removal of name is required to obtain an objection certificate from an appropriate regulatory authority.
4.3 Filing application in form STK-2
- After receiving shareholders’ approval and approval of regulatory authorities if applicable, an application for strike off of a private company’s name in Form STK-2 duly signed by directors, managing director, CFO or CS should be filed along with a fee of INR 10,000.
- No application shall be filed in Form STK-2 by a company unless it has filed overdue returns in Form No. AOC-4 (Financial Statement) or AOC-4 XBRL, as the case may be, and Form No. MGT-7 (Annual Return), up to the end of the financial year in which the company ceased to carry its business operations
- Application in Form SKT-2 shall be accompanied with the following documents:
- Indemnity bond duly notarized by every director in Form STK 3;
- A statement of accounts in Form STK-8 containing assets and liabilities of the private company made up to a day, not more than 30 days before the date of application and certified by a Chartered Accountant;
- An affidavit in Form STK 4 by every director of the private company;
- A copy of the special resolution duly certified by each of the directors of the private company or consent of seventy-five percent of the members of the private company in terms of paid up share capital as on the date of application;
- A statement regarding pending litigations, if any, involving the private company;
- Copy of Board resolution;
- Copy of order of approval from a concerned regulatory authority.
- Form STK-2 should be certified by a practising Chartered Accountant or a practising Company Secretary or a practising Cost Accountant before submission to ROC.
4.4 Public notice for striking off the name of company
- After receipt of the application, the Registrar of Companies will issue a public notice for inviting objections in Form STK-6.
- Such notice shall be:
- Placed on the official website of the Ministry of Corporate Affairs on a separate link established on such website in this regard;
- published in the Official Gazette;
- published in English language in a leading English newspaper and at least once in vernacular language in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated.
- Placed by the company on its website, if any, till the disposal of the application.
- The time limit for sending an objection is 30 days from the date of publication.
4.5. Intimation to regulatory authorities about the proposal for removal of the name of the company
- In addition to name of company, The Registrar shall, simultaneously intimate the concerned regulatory authorities regulating the private company, viz, the Income-tax authorities, central excise authorities and GST authorities having jurisdiction over the private company, about the proposed action of striking off the names of such private companies and seek its objections, if any.
- The concerned authorities should furnish their objections within a period of 30 days from the date of issue of the letter of intimation.
- In case, no objections are received within aforesaid period, it shall be assumed that they have no objections to the proposed action of striking off.
4.6 Order for striking off the name of private company
- Before passing order of strike-off or name removal, the registrar shall satisfy himself that sufficient provision has been made for the realization of all amounts due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company.
- the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
- After receiving objections or no objection certificates from regulatory authorities, the RoC shall strike off the private company’s name from the register of companies, and publish notice thereof in the official gazette in Form STK-7.
- The private company shall stand dissolved on the publication of the notice in the official gazette. The same shall also be placed on the official website of the MCA.
5. Liability of Directors and Managers shall remain as it is
- After passing order of removal of name, the liability of every director, manager or other officer who was exercising any power of management, and of every member of the company shall continue and may be enforced as if the company had not been dissolved.
- Further, even after removal of the name of the company, the Tribunal may exercise the power to wind up a company.
6. Companies not eligible for removal of name
As per Rule 3 of The Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016, the following category of companies shall not be removed from the register of companies:
- listed companies;
- companies that have been delisted due to non-compliance of listing regulations or listing agreements or any other statutory laws;
- vanishing companies;
- companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;
- companies where notices under section 234 of the Companies Act, 1956 (1 of 1956) or section 206 or section 207 of the Act have been issued by the Registrar or Inspector and reply thereto is pending or report under section 208 has not yet been submitted or follow up of instructions on report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the Court;
- companies against which any prosecution for an offense is pending in any court;
- companies whose application for compounding is pending before the competent authority for compounding the offenses committed by the company or any of its officers in default;
- companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
- companies having charges which are pending for satisfaction; and
- companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.
* “vanishing company” means a company:
- registered under the Act or previous company law or any other law for the time being in force; and
- listed with Stock Exchange;
- The Company has failed to file its returns with the Registrar of Companies and Stock Exchange for a consecutive period of 2 years and
- It is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and
- none of its directors are traceable.