Closing down a Private Limited Company in India is a pretty elaborate process, with one being surrounded by multitudes of legal procedures and compliance regulations. Financial distress or business restructuring or any such strategic decision to close down a company-whatever the reason be, it should be closed down correctly so that liabilities are avoided at later stages. Bizpole promises end-to-end complete compliance services, right from the closure of a private company, thereby ensuring hassle-free handling of such procedures. Our company law and compliance expertise prepositions us as the best counterparty for all these complex requirements that come in closing a Private Limited Company.
This illustrated, step-by-step guide guides you through the entire process of closing a Private Limited Company, ensuring you understand each relevant step along with the corresponding statutory obligations.
1.Closure Methods of Private Limited Company
Depending upon your case, there are three main modes by which a Private Limited Company can be closed in India:
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Strike Off by ROC
This is applicable to all the cases wherein either the company has never commenced business or it remains dormant for a period of two years. This is a simplified method where the company can directly apply to the ROC for closure.
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Compulsory Winding Up
It may be instituted by a tribunal or court which generally occurs in the event of insolvency or
Fraudulent trade practice and if the Company is deemed to be against public interest.
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Voluntary Winding Up
In case shareholders or creditors want the company to be wound up for any reason, such as achieving business objectives or disputes amongst members, then this may be done by passing a special resolution that shuts the company.
Knowledge of these processes is important to identify which of these should be applied in closing your company. Each has its procedures, documents, and timelines.
2 Closing a Private Limited Company Procedure
Step 1: Board Resolution
Holding of board meeting and resolution that must be approved on closing of company by not less than two thirds of the entire membership of the company’s board. Satisfy any outstanding liabilities prior to further action.
Step 2: Special Resolution of Shareholders
Once the resolution of the board is passed, a general meeting would have to be called for and a special resolution passed wherein the requirement to approve the same resolution would entail that at least 75% of the shareholders of the company will be in assent with it.
This is considered an essential part of the processes of voluntary strike-off as well as voluntary winding-up. After the special resolution is passed, the same should be lodged with the ROC within or before 30 days along with appropriate forms and application.
Step 3: Forms and Application Filing at ROC
In case of a Voluntary Strike Off, the company is required to present Form STK-2 before the ROC with the following:
- An indemnity bond and affidavit by Directors (Form STK-3 and STK-4)
- A statement of accounts not more than 30 days as of the date of filing.
- A copy of resolution and statement of assets and liabilities and
- Consent of all shareholders and creditors.
- Minutes and Attendance sheet.
Step 4: Notice Publication
Once the application is submitted the ROC shall serve a public notice in the official Gazette and on the ROC’s website within the time window of 30 days, any objections can be filed to it. In the time window, all creditors or stakeholders who have a claim against the company can raise opposition against the closure.
Step 5: Approval from ROC
When there is no objection within the given period, ROC will clear the application and will remove the name of the company from the register. This will be the announced closing of the company and ROC will issue an official certificate of dissolution.
- Documents Required to Close Private Limited Company
- Copies of Board Resolution and Special Resolution
- Statement of Accounts not exceeding 30 days from the date of filing
- Deed of Indemnity Bond Form STK-3 and Affidavit Form STK-4 .
- Consent of Shareholders and Creditors .
- Auditor’s Certificate and Declaration of Solvency for Voluntary Winding Up .
- Application Form STK-2 or, whichever is applicable application form forms.
All these documents have to be filed in the right way so that there is no delay or even rejection of the closure application.
- Essential Points Before Closing a Private Limited Company
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Settlement of Liabilities
As many liabilities as possible, such as loans, taxes, and even salaries, should be completely settled before the closure process takes place. Partial settlement of liabilities may even delay the procedure and lead to legal action.
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Finalisation of Financial statements
All the financial statements of the company be updated, audited and placed before the ROC for scrutiny purposes.
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GST and other compliance filings
All pending GST and other statutory filings shall be completed prior to claiming such closure. No return or tax may remain unpaid or pending.
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No Pending Court Cases
Any court cases that the company might have outstanding must be settled or withdrawn before closure of the business.
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Directors Liabilities
The liabilities of law should be cleared by the directors as they might be liable in case of
non-compliance subsequent to the closure of the company.
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Timeline and Closing Costs for a Private Limited Company
The period varies with the procedure adopted for the Private Limited Company being wound up.
Voluntary strike-off may take 3-6 months. In contrast, voluntary winding up takes a longer period of above one year, or years, because this might depend on the intricacies involved in the business form and the liabilities that are yet to be agreed upon.
The cost of closure depends on several factors including assets and liabilities of the company as well as charges of legal advisory fees. In case of simple voluntary strike-off, ROC fees range between ₹10,000 to ₹20,000, not inclusive of professional fees.
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Impact of Non-Shut of a Dormant Company
If a company remains dormant and fails to file ROC returns, then that company and its directors suffer the penalty and legal issues. However, if the ROC finds an extremely long time after which the company is not closed, then they will strike such a dormant company off the register; their directors may also get debarred from operating their respective positions as directors for all companies. Proper legal procedure in the closure of an inactive company always saves a person from such troubles.
Conclusion
The whole procedure of closing a Private Limited requires proper planning, accurate documentation, and timely compliance. It is where, Bizpole feels at home – efficiently managing a company’s closure, ensuring that all legal formalities are done without any glitches. Whether it is LLP Annual Filing, Company Annual Filing, Trademark Registration, GST Registration, conversion of companies like partnership to LLP and Private Limited to LLP, this would be the one-stop shop for all the businessrequirements.
Do you want to close a business? Contact Bizpole today and allow us to make the process smooth and seamless while ensuring all compliance is met at each end.
