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Winding up of Company

When over 3L directors faced directorship suspension (which means they cannot be directors in any company for 5 years), entrepreneurs or directors who were lucky enough to have not brought under that radar, are now taking some serious decisions on filings and existence. In this blog, with an attempt help those directors who are considering winding up, we will look into things one must keep in mind in order to windup a Company.

Any company (Private Limited Company or One Person Company) continues to be in existence until it is dissolved according to the law.

#1. Dissolution can be done in following ways:

  1. By Removal of the company’s name from the register by the registrar without winding up order.
  2. By order of the Court
  3. By order of the central government.
  4. By winding up

#2. Dissolution and winding up are two different things:

  • Winding up procedure requires that liquidators acts of realizing and collecting the assets of the company, satisfying its debts and obligations, distributing its capital and surplus assets among the members of the company.
  • Dissolution comes after the liquidators have done all this in the winding up and tag the company as non-active.

#3. Winding can be done in following ways:

  1. Compulsory winding ordered by a court.
  2. Voluntary winding
  3. Subject to the supervision of the court

#4. While clearing out debts, assets from the members will be accounted in the following ways:

  • Every person liable to contribute to the assets of a company in the event of its being wound up, and includes holders of shares.
  • Past members will not be required to contribute in the following circumstance:
    • If he had ceased to be a member for a period of one year or more before the commencement of winding up
    • If the debt or liability of the company was contracted or incurred after he ceased to be a member
    • If the present members are able to satisfy the contributors required to be made by them under the Act.
  • In a company limited by shares, any past or present member is not required to contribute in excess of the amount, if any, unpaid on the shares in respect of which he is liable as such member.
  • In a company limited by guarantee, a past or present member is not required to contribute an amount which is in excess of the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up.

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Secretarial Compliance, Uncategorized, Winding up of Company
It is better to abandon a sinking and damaged ship than to sink with it. A business may need to be closed for many reasons that may be due to business failure or any other unavoidable circumstances. This article will help you understand different ways to close a company in India.

Under Companies Act 2013, a Company can be closed in two ways.

    1. Winding Up
Winding up is a tedious process and can be done either voluntary by calling up a meeting of all stakeholders and passing a special resolution or can be done on the order of Court or Tribunal. Strike Off mode was introduced by the MCA to give the opportunity to the defunct companies to get their names struck off from the Register of Companies. On 27th December 2016, MCA has notified new rules i.e. Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 prescribing rule for winding up or closure of the private limited company under companies act 2013. By releasing the form STK 2, the ministry of Corporate Affairs has brought the Section 248- 252 of 2013 act into force.

    1. Fast track Exit
This is the most awaited procedure, that got active again on 5th April 2017. This procedure was introduced in Section 248 of Companies Act 2013.
Fast Track exit can be done in two ways:
    • Suo Moto by Registrar
The registrar may strike off the name of Company on its own if:
    • Company has failed to commence any business in a year of its incorporation
    • The company is not carrying out any business or Activity for preceding 2 financial years and has not sought the status of Dormant Company.
The Registrar sends a notice (STK-1) of his intention to remove the name and seeks the representation of Company in 30 days. Note: Liability on the Directors of the company still exists. ROC can invoke penalty clauses anytime, and the penalty may range from INR 50K to INR 5Lakhs per director.
    • Voluntary Removal of Name using Form STK 2
The company can also move an application to Registrar of Companies for striking off the name by filing form STK-2 along with a fee of Rs 5000/-. Once the form is filed, the Registrar has power and duty to satisfy him that all amount due by the company for the discharge of its liabilities and obligations has been realized. ROC can also issue a show cause notice in case of default in filing returns or other obligations. After above formalities, ROC issues a public notice and strike off the name of Company after its expiry. Note: The form is in approval route. Therefore, concerned ROC can ask for the completion of the fillings.

Details Required
    • Incorporation Certificate
    • Director Identification Number
    • Pending Litigation Proceedings if any
Documents Required:
    • Application in form STK-2
    • Government filing fees: INR 5,000/-
    • Copy of Board resolution authorizing the filing of this application;
    • A statement of accounts showing the assets and liabilities of the Company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant
    • The shareholder’s approval by way of Special Resolution
    • In the case of a company regulated by any other authority, approval of such authority shall also be required.
    • Copy of relevant order for delisting, if any, from the concerned Stock Exchange;
    • Indemnity bond in Form No. STK-3;
    • Affidavit in Form No. STK-4
Note: This form must be signed by a practicing CA or CS

Companies that cannot file for voluntary strike-off:

A company cannot fill the form STK 2 at any time in the previous 3 months if the company has
    1. Has changed its name or shifted its registered office from one State to another;
    2. Has made a disposal for value of property or rights held by it, immediately
    3. 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;
    4. 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;
    5. Has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
    6. Is being wound up under Chapter XX of Companies Act or under the Insolvency and Bankruptcy code, 2016

Companies that cannot use Fast Track Exit option:
    • Companies Registered Under Section 8
    • Listed companies
    • Companies that have been delisted due to non-compliance of listing regulations or listing agreement 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 have been issued by the Registrar or Inspector (under Section 234 of the Companies Act, 1956 (old Act) or section 206 or section 207 of the Act)and reply thereto is pending;
    • Companies against which any prosecution for an offense is pending in any court;
    • Companies whose application for compounding is pending;
    • 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.

After you Strike off your company:

As soon as the name of the company is removed from Register, from the date mentioned in the notice under sub-section (5) of section 248 cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been canceled from such date except for the purpose of realizing the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.

Secretarial Compliance, Uncategorized, Winding up of Company
Entrepreneurs remain Entrepreneurs! Sometimes, what surprises me the most is, Why Shut Down your Startup when there are Options for Legal Existence? Majority of entrepreneurs lack a proper legal advisory in the team that could help the firm to take right decisions predicting things long before. In this article, I will be focusing on ways a startup could sustain to be active smartly in Indian startup ecosystem.

You have three options:

Plan A: Work on a similar business idea, with modifications in MOA

You can alter Memorandum of Association through Special Resolution & Confirmation by Central Government (Section 13)

Note: In case of failure to register within the time prescribed then all such alterations made and the orders of Central Government will become void.




Plan B: Let the firm be without any operations and file with ROC of Nil returns annually.

As per Companies Act, 2013 Section 92(1) every company is required to file the annual return. For Companies that have had no operations nor have any transactions to file Nil Returns in annual returns with ROC.


Plan C: Apply for dormant status of the Company

Section 455 of the Companies Act 2013 defines Dormant Company as a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company, without any significant accounting transactions i.e. an Inactive company (no business or operation), or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.  


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