Closure of Company (Strike-off or Winding Up):

Closing a company legally in India, either through strike-off or winding-up, is a structured process governed by the Companies Act, 2013. The method chosen depends on the company’s financial and operational status. A strike-off is a simpler procedure, typically for inactive or non-operational companies, while winding up is a more complex, court-driven process for companies with liabilities, assets, or other financial obligations. Compliance with closure procedures helps avoid future legal obligations and penalties.

Purpose of Company Closure:

  1. Termination of Legal Existence: Legally closing a company removes it from the records, releasing the promoters and directors from liabilities.
  2. Cost Efficiency: An inactive company can incur maintenance costs, including annual compliance fees. Closure stops these ongoing expenses.
  3. Protection from Legal Actions: A compliant closure safeguards directors and promoters from legal actions related to company obligations.
  4. Avoiding Penalties: Ensures that non-functional companies do not accumulate penalties for missed annual filings and other statutory obligations.

Types of Company Closure:

  1. Strike-off:
  1. Suitable for companies that have not commenced business within a year of incorporation or have been dormant for a significant period.
  2. Can be initiated by the company’s board or by the Registrar of Companies (ROC).
  3. Processed under Section 248 of the Companies Act, 2013.
  4. Winding Up:
  1. Appropriate for companies with outstanding liabilities or assets, requiring settlement before dissolution.
  2. Involves liquidation of assets to satisfy creditors, employee claims, and other debts.
  3. Conducted through either voluntary winding up by members or creditors or compulsory winding up by a tribunal.

Compliance Requirements:

  1. Strike-off Procedure:
  1. Eligibility: Company must be inactive, without significant liabilities, and have completed required filings up to the strike-off application date.
  2. Resolution: Board resolution followed by a special resolution in a general meeting for voluntary strike-off.
  3. Application (Form STK-2): Filed with the ROC, along with the affidavit from directors, indemnity bond, and recent financial statements.
  4. Advertising: Notice of the proposed strike-off must be advertised, inviting any objections.
  5. Winding-Up Procedure:
  1. Resolution and Approval: Requires board and shareholders’ approval to proceed with voluntary winding-up.
  2. Appointment of Liquidator: A licensed liquidator is appointed to manage the process.
  3. Liquidation Process: Liquidator settles outstanding liabilities, sells assets, and distributes remaining funds to shareholders.
  4. Final Filing: Upon completion, the liquidator files a final account and statement with the ROC, following which the company is dissolved.

Documentation Required:

  • Board and Special Resolutions: Required to authorize closure.
  • Affidavit and Indemnity Bond: Signed by directors declaring that all obligations are settled.
  • Financial Statements: Up-to-date statements showing the company’s financial position.
  • No Objection Certificates (NOC): From creditors, banks, or regulatory bodies, as applicable.
  • Tax Clearance Certificates: Ensuring all tax dues are paid.

Process:

  1. Strike-off:
  1. Prepare and pass board and special resolutions.
  2. File Form STK-2 along with required documents.
  3. ROC reviews and publishes the notice to invite any objections.
  4. If no objections are raised, ROC strikes off the company from the register.
  5. Winding Up:
  1. Appoint a liquidator and notify the ROC.
  2. Liquidator settles all debts and disposes of assets.
  3. Distribute remaining funds to shareholders, if any.
  4. Final accounts are submitted, and ROC issues a dissolution order.

Charges:

  • Strike-off Filing Fees: ₹7,000 – ₹20,000, depending on professional assistance and documentation needs.
  • Winding Up Costs: ₹20,000 – ₹50,000, as it involves liquidation, professional fees, and administrative expenses.

Timeline:

  • Strike-off: Generally completed in 3-6 months, subject to ROC processing and any objections raised.
  • Winding Up: Can take 12-24 months or longer, depending on asset liquidation and debt settlement complexity.

Penalties for Non-Compliance:

  • Ongoing Statutory Penalties: Failure to close the company results in continued filing requirements and penalties for non-compliance.
  • Legal Risks: Directors and promoters may be personally liable for any unfulfilled obligations.
  • Registrar Action: The ROC may initiate action against companies that fail to meet compliance for extended periods.

Benefits of Proper Closure:

  1. Clear Termination of Liabilities: Closure ensures directors are no longer responsible for the company’s liabilities.
  2. Cost Savings: Reduces the financial burden of maintaining compliance for an inactive company.
  3. Clean Legal Exit: Avoids future legal complications or government inquiries related to unfulfilled obligations.
  4. Compliance with Law: Prevents penal action by the ROC for non-operational companies that fail to comply with annual filings.

Properly closing a company, either by strike-off or winding up, ensures compliance with legal requirements and minimizes liabilities for directors. This structured approach is essential for inactive or non-operational companies that wish to exit the market without residual obligations.