According to Section 2(68) of the Companies Act, 2013, a Private Limited Company is one whose articles of association restrict the transferability of shares and prevent the public from subscribing to it.
When a company is incorporated, a certificate of incorporation is issued by the Registrar of Companies which acknowledges the existence of the company.
On the other hand, when the company fails to commence its business, the registrar may strike off the company or it may be wound up voluntarily.
The process of closing a private limited company is lengthy as all the company’s assets are sold or distributed among the shareholders, and all the liabilities are settled. The company pays all creditors and other liabilities.
A Pvt Ltd Company is one of the simplest and finest forms of business entity. Millions of companies have been registered. Yet sometimes running a business comes with challenges, so we may have to close it down or form a private limited company, which is a long process.
Why Private Limited Company Closure?
There are many reasons for closing private limited companies. Running a company requires a lot of hard work and it leaves a mark in your blood and winding up a private limited company is quite difficult. However, at times you have to do this due to legal documentation, auditing, and filing of periodic returns which require a lot of scrutiny, and the only option left is the closure of a company.
Proper methods and procedures should be followed for winding up a private limited company. There is also creditor protection. No legal action will be taken against the company if proper procedure is followed. The process of closing a private limited company in India requires very little cost. In the next paragraph, we will read how to close a private limited company.
How to Close a Private Limited Company?
There are 2 ways of closure of a private limited Company:
Voluntary Company Closure
Voluntarily winding off a company requires long procedural compliance to follow. When a company no longer wants to continue its business operations for reasons of loss in business, or not finding any profit, the business owners can voluntarily liquidate the company.
Voluntarily Winding up is divided into members’ voluntary winding up & creditors' voluntary winding up.
There is a lengthy procedure to be followed to get it voluntarily wind up. The tribunal or the Registrar of the company ensures that all the outstanding debts and all the creditors are paid off.
The company can be wound up voluntarily in the following situations mentioned steps:
– The company passes a resolution in its general meeting upon the expiry of the duration for which it is formed or any event in respect of which the articles provide for its dissolution.
– The consent of the creditors is also required for the winding up of the company. More than 3/4th of the creditors should agree to the wind-up of the company.
– The company has to make a declaration of solvency and the same should be accepted by the creditors of the Company. The company must show credibility in the declaration of solvency.
– The Liquidator appointed will carry out the winding-up proceedings & prepare a report of the winding-up of the assets, liabilities, properties & so on. This report shall be laid down in the general meeting of the company for approval & passing a resolution for the dissolution of the company.
– 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.
Winding up by the Tribunal (Compulsory Winding off)
Winding up by the tribunal when external members are involved in the process of winding up.
There are specific grounds for which a Pvt Ltd Company can be closed/wound up
* If the tribunal thinks that the company is unable to pay off the debts. The inability to pay debts is construed in section 271(2) of the Companies Act,2013.
* If the tribunal has considered winding up the company because it is a sick company. A sick company means a company that has failed to pay the debt of its secured creditor within 30 days of the notice of the demand or compound it to the reasonable satisfaction of the secured creditors.
* When the company has faulted in filing the annual returns.
Procedure for Closing Private Limited Company
Petition filed:
Petition to be filed by the interested individuals.
The following can file the petition on behalf of the company:
* Trade creditors of the company
* The company itself
* Any form of contributor of the company
* Any of the three mentioned categories
* Government Authorities
* Registrar of Companies
Petitions should be submitted in the form of WIN 1 or WIN 2. Such a petition should be submitted in three copies. An affidavit must be accompanied by the petition in form WIN 3.
Statement of Affairs of the company
The statement of Affairs of the company must be provided along with the petition as per Rule 4 of the company (winding up ) Rules, 2020 & must be submitted in form WIN 4.
Advertisement for at least 14 days
The petition must be advertised for a period of 14 days before the date of the hearing. Such advertisements must be in English and in a vernacular language. The format must be in form WIN 6.
Appointment of Provisional Liquidator & send notice to the provisional liquidator
After the submission of the petition along with the official proof with the affidavit, then the tribunal will appoint a provisional liquidator in the form WIN 7
The responsibilities that have to be carried out by the provisional liquidator would be in accordance with the requirements of the Company in form WIN 8.
In form WIN 9, the ROC would send a copy of the notice to the provisional Liquidator through courier or registered post within 7 days of the order.
Winding up of the order
In format WIN 11, the winding-up order is to be sent to the company liquidator. This must be sent within 7 days to the company by the registrar. When it is sent by the registrar to the company it must be in form WIN 12 and 13.
The property is in the custody of the liquidator
All the assets of the company and documents would be taken by the company liquidator, then the company liquidator would make an application to the tribunal for the dissolution of the company.
Once the order is passed for winding up a company, a copy of the order would be forwarded to the Registrar which must be carried out within 30 days of the order of the winding up of a company.
Dissolving the company
If the tribunal finds out that the accounts are in order when only they would pass an order for the dissolution of a company within 60 days of receiving such an application.
Documents required for Company Closure
* Certificate of Incorporation
* MOA & AOA of the company
* Closure of the bank account certificate of the company
* Board Resolution copy
* Copy of the resolution of the creditors stating 3/4th of members have accepted
* Accounts statement
* Winding up petition
How Can JustStart Help for Pvt Ltd Company Closure
A company can be closed for many reasons, but closing a company is no easy task as closing requires a lot of forms and filings so you can access JustStart, fill out the forms, and submit the information. Our team will guide you at each stage you take your company to close, track progress, and achieve better deliverables.
