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How to Close a Private Limited Company?

Updated on: Oct 12th, 2021


7 min read

Running a business comes with its own challenges. Sometimes when things do not work out a business may have to be shut down. There can be several reasons to close or wind up the company. Here are four ways in which a private limited company can be closed. So, In this article we cover the following topics:

Sell the Company

To sell off a Private Limited Company is also a kind of voluntary winding up. It can be done by selling shares of the company (selling the majority shareholding of the company). Technically speaking it is not an actual winding up but the stakes are transferred to another person or entity and the majority shareholders are discharged of their stocks and responsibilities.

Compulsory Winding Up

Any company registered in India under the Companies Act, which did an unlawful act, fraudulent act or even if they contributed any action in some fraudulent or unlawful activities then such company would be wound up compulsorily by the Tribunal.

Compulsory winding up involves the following steps:

Filing of a petition

The petition will be filed by the following:

  • The Company or
  • The Trade Creditors of the Company or
  • Any contributory or Contributors to the company or
  • Any or all of the above mentioned three categories or
  • The Central or State Government or
  • By the Registrar of the CompaniesThe petition should be in Form WIN 1 or WIN 2 and should be submitted in triplicate. The petition shall be accompanied by an affidavit in Form WIN 3.

Statement of Affairs of the Company

All the documents accompanied by petition should be audited by a practising CA and the opinion given by the Auditor on the Financial Statement must be unqualified. The statement of affairs should be in Form WIN 4 in duplicate, which should be verified by an affidavit in Form WIN 5.

Advertisement for at least 14 days

The Petition should be advertised in a daily journal at least for 14 days and the language of the advertisement should be in the Regional language (Regional Language of the area) and in English. The advertisement must be carried out under Form 6.

Proceedings of the Tribunal

The Tribunal will hear the petition on the date fixed for hearing, accept objections and replies from the petitioner and respondent. The Tribunal may appoint a provisional liquidator. The order appointing provisional liquidator shall be made in Form WIN 8. The order of winding up shall be made in Form WIN 11. The order of winding up shall prescribe:

  • The duty of such persons to submit the complete audited books of accounts up to the date of the order.
  • Provide the date, time and place for the Company Liquidator.
  • Surrender the assets and the documents of the assets to the Company liquidator. Upon a winding-up order, the Company liquidator shall take into custody all properties and effects, actionable claims and the books and papers of the company.
  • The Company liquidator shall submit a report to the Tribunal within 60 days of the date of the winding-up order.
  • After the affairs of the company have been completely wound up, the Company Liquidator shall make an application to the Tribunal for dissolution of the company. If the tribunal finds it just and reasonable in the circumstances of the case that an order for the dissolution of the company should be made, make an order that the company be dissolved from the date of the order. The company shall be dissolved accordingly.
  • The Company liquidator shall within 30 days of the date of the order, forward a copy of the order to the registrar.

If the tribunal finds the accounts are in order and all the required compliance have been satisfied, the tribunal would pass the order for dissolving the company within a period of 60 days of receiving the application. After the order has been passed by the tribunal, the registrar will then issue a notice to the Official Gazette stating that such company is dissolved.

Voluntary Winding Up

Winding up a company voluntarily require long procedural compliance to follow. There are certain mandatory requirements that have to be completed to close down a company voluntarily. A company can be wound up voluntarily in the situations mentioned below:

  • The company passes a resolution in its general meeting upon the expiry of the duration for which it is formed, or upon the occurrence of any event in respect of which the articles provide for its dissolution.
  • The company passes a special resolution (with approval of at least 3/4th of the shareholders) for a voluntary winding up of the company. The voluntary winding-up commences from the date of passing of the resolutions mentioned above. The company should also appoint a Company liquidator in the same meeting. Such an appointment should also be confirmed by a majority of the creditors (in terms of value) of the company.

Voluntary winding up involves the following steps:

  • The company passes a resolution in their general meeting as mentioned above. However, the majority of directors must agree for winding up.
  • The consent of the Trade Creditors is also required to wind up the company. Trade Creditors has to give their approval that they don’t have any obligation if the company gets wound up.
  • The Company has to make a Declaration of Solvency and the same must be accepted by the trade creditors of the company. The Company must show the Company’s credibility in the Declaration of Solvency.
  • The liquidator so appointed will carry out the winding-up proceedings and prepare a report of the winding-up on the assets, properties, debts and so on. The report shall be laid before the general meeting of the company for approval and passing a resolution for dissolution of the company. The Company liquidator shall send a copy of the final accounts of the company and resolutions to the ROC
  • The Company liquidator shall also make an application to the Tribunal for an order of dissolution of the company. Upon being satisfied with the winding up, the Tribunal shall pass an order of dissolution within 60 days of the application. A copy of the final order should be filed with the ROC.

All the above-mentioned procedures shall be presented and filed in a prescribed form and even after the company gets wound up then also company’s name shall be prohibited for 2 years to be taken by any other applicant.

The format for various forms and detailed procedure for winding up is prescribed in Companies (Winding up) Rules, 2020.

Defunct Company Winding Up

As per the Companies Act, 2013, a Defunct Company is a company that has gained the status of a Dormant Company. The government provides certain relief to such defunct or dormant company because there are no financial transactions undertaken by dormant companies.

The Companies Act, 2013 laid down the procedure for winding up a Defunct Company. A Defunct or Dormant Company can be wind up with a fast-track procedure that requires submission of the STK-2 form. Hence, Form STK-2 is required in order to wind up a Defunct Company and there is no additional procedure for that. 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:

  • No asset and no liability, and
  • Which has not commenced any business activity after its incorporation or
  • Has not been carrying on any business activities since last one year prior to making an application under FTE (Fast Track Exit Scheme).
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Quick Summary

The article covers ways of closing a private limited company: selling the company, compulsory winding up by a tribunal, voluntary winding up following meeting resolutions and defunct company winding up with fast-track procedure using STK-2 form.

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