Difference Between Dissolution and Winding Up of a Company

Dissolution of a company is when a company is dissolved by order of a Tribunal, i.e. National Company Law Tribunal (NCLT), after the completion of its winding-up process. The company’s dissolution brings its existence to an end, and its name is struck off by the Registrar of Companies (ROC).

Both dissolution and winding up relate to the company’s end and are sometimes confused by the people. Winding up is the process where the liquidator is appointed to settle and distribute the company’s assets among the creditors and other relevant stakeholders. Dissolution takes place after the winding process is completed.

Dissolution of a Company

A company ceases to exist as a corporate entity after its dissolution. The company name is struck off from the Register of Companies, and it shall be published in the Official Gazette. Dissolution of a company can be brought about in the following two ways:

• Through transferring the company’s undertaking to another company under a scheme of amalgamation or reconstruction. The order of NCLT will dissolve the transferor company without being wound up. 
• Through winding up of the company by realising its assets and paying its liabilities from the proceeds. After settling the company debts, the remaining amount will be distributed to the stakeholders, and the NCLT will pass an order of dissolution.

An application to the NCLT winds up a company. Upon satisfaction of the compliances under the Companies Act, 2013 and consent of the interested parties, the NCLT passes the dissolution order. The dissolution order upon winding up of a company has the following implications:

• The winding up procedure of the company is completed.
• The assets and liabilities are settled and distributed among the stakeholders in the order of preference.
• The company name is struck off from the Register of Companies. 

When the company is dissolved under the scheme of amalgamation or reconstruction, the dissolution order has the following implications:

• The winding up procedure need not be carried out as the company is taken over under the scheme of reconstruction or amalgamation.
• The winding up application need not be made for dissolution, and the transferor company is dissolved when it amalgamates or is reconstructed.

Winding up of a Company

The winding up procedure results in the dissolution of a company. A liquidator is appointed who takes control of the company. The liquidator realises the company assets and applies the proceeds in payment of its debts. After the satisfaction of the company debts, the balance, if any, is paid back to the members in proportion to their contribution made to the company capital. 

In between winding up and dissolution, the company exists, and it can be sued in a court of law or NCLT. After completing the winding up process, the liquidator applies to the NCLT to pass an order of dissolution. Thus, the end of the winding up process is the dissolution of the company.

Winding up of the company can be in two ways, i.e. compulsory winding up or voluntary winding up. The compulsory winding up process is initiated when the creditors or ROC or company itself files an application for winding up to the NCLT. The voluntary winding up is initiated when the company applies to the NCLT for initiating the winding up process after passing a special resolution.  

The following events lead to compulsory winding up of a company by a creditor or ROC:

• If the company fails in payment of its debts.
• If the company is formed in any fraudulent manner.
• If the company acts against the interests of the integrity and sovereignty of India, the security of the State, public order, morality or decency.
• If the tribunal is of the opinion that it is equitable and just that the company should be wound up.
• If the company defaults in filing its annual returns or financial statements for the preceding five consecutive financial years with the ROC.
• If the company is declared bankrupt under the Insolvency and Bankruptcy Code.

For the voluntary winding up of a company, it needs to pass a special resolution and appoint a liquidator for selling its assets and prepare liquidation reports of the company. These reports should be submitted to the ROC to remove the company name from the records and complete the winding up process.

Dissolution and Winding Up Differences

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