How to close Private Limited Company- Apply for Company Strike off.
Closing a Private Limited Company refers to the process of formally winding down and dissolving a privately held company that is incorporated as a Private Limited Company. This process is undertaken when the company’s owners or directors decide to cease its operations and legal existence. Closing a Private Limited Company involves several steps and legal procedures to ensure that the company’s affairs are properly concluded and that it no longer exists as a legal entity. Here are the key aspects of closing a Private Limited Company:
- Board Resolution: The directors of the company typically hold a board meeting and pass a resolution to approve the closure of the company. This resolution should be recorded in the minutes of the meeting.
- Clearing Outstanding Liabilities: Before closing the company, all outstanding debts, loans, and liabilities must be settled. This includes paying off creditors, suppliers, and financial institutions.
- Tax and Compliance Clearance: Ensure that all tax liabilities, such as income tax, GST/VAT, and other taxes, are cleared with the relevant tax authorities. Compliance with filing annual returns, financial statements, and other regulatory requirements should also be addressed.
- Asset Disposition: Dispose of company assets appropriately, whether by selling them, transferring them to shareholders, or handling them in accordance with the company’s Articles of Association. The proceeds from asset disposition are typically used to settle any remaining liabilities.
- Cancel Licenses and Permits: Cancel any licenses, permits, or registrations that the company holds with government agencies or regulatory bodies.
- Obtain No Objection Certificates (NOCs): Obtain NOCs or written consent from creditors, shareholders, and other relevant parties to close the company. This is important to ensure that there are no objections to the closure.
- File Application for Strike Off: Prepare and file the necessary documents for company strike off with the appropriate regulatory authority, such as the Registrar of Companies (ROC) in your jurisdiction.
- Publication of Strike Off Notice: In some jurisdictions, it may be necessary to publish a public notice of the company’s intent to strike off in local newspapers or official gazettes.
- Obtain Clearance Certificate: After reviewing your application and ensuring compliance with legal requirements, the ROC or relevant authority will issue a clearance certificate for strike off.
- Company Strike Off: Following the issuance of the clearance certificate, the ROC will strike off the company from the registrar, officially ceasing its legal existence.
- Inform Stakeholders: Notify all stakeholders, including employees, creditors, clients, and regulatory authorities, about the company’s strike off.
- Bank Account Closure: Close the company’s bank accounts and complete all financial transactions related to the company.
- Maintain Records: Retain all records and documents related to the company for the legally mandated duration after dissolution.
- Tax De-registration: De-register the company for tax purposes with the relevant tax authorities.
- Final Compliance: Ensure that all additional regulatory and tax compliance requirements are met as specified by local laws.
Closing a Private Limited Company is a formal and legal process that must be carried out in accordance with the laws and regulations of the jurisdiction in which the company is registered. Failing to follow the proper procedures can result in legal consequences and liabilities for the company’s directors and shareholders.
Types of Strike off- Under how to close private limited company.
There are two types of strike-off:
- Voluntary Strike Off: This type of strike off is initiated by the company itself or its directors when they decide to close the company. Voluntary strike off is a proactive decision made by the company’s management or shareholders when they no longer wish to continue its operations. The company needs to follow the legal procedures and requirements as mandated by the relevant regulatory authorities, such as filing the necessary documents, settling outstanding liabilities, and obtaining clearance certificates. Voluntary strike off typically occurs when a company becomes dormant, non-operational, or is no longer economically viable.
- Compulsory Strike Off: A compulsory strike off is initiated by the regulatory authorities or the Registrar of Companies (ROC) when a company fails to comply with legal and regulatory requirements. This typically happens when a company neglects to file its annual returns and financial statements for an extended period, or when the ROC suspects fraudulent activities or non-compliance. In such cases, the ROC may issue a notice of intent to strike off the company’s name from the register. If the company does not rectify the issues within a specified period or respond to the notice, the ROC may proceed with the compulsory strike off.
Both types of strike off involve a formal process to dissolve the company, but the key difference is in who initiates the process—voluntary strike off is initiated by the company itself, while compulsory strike off is initiated by regulatory authorities due to non-compliance. Regardless of the type of strike off, it’s essential to follow the legal procedures and comply with the requirements set forth by the jurisdiction’s company law and regulatory bodies. Failure to do so can result in penalties and legal consequences for the company’s directors and shareholders.
Eligibility for Company Strike Off through Fast Track Exit [FTE] Mode-Under how to close private limited company.
In India, the Fast Track Exit (FTE) mode was introduced to provide a simplified and faster process for striking off defunct companies. It allows eligible companies to apply for a quick and cost-effective strike off from the Registrar of Companies (ROC). To be eligible for the Company Strike Off through FTE mode, certain criteria and conditions must be met:
- Defunct Status: The company must be defunct, which means it should not be carrying on any business operations or have any significant assets or liabilities. In other words, it should be a non-operational company.
- No Bank Account: The company should not have any bank accounts in its name. All bank accounts should be closed before applying for FTE.
- No Litigation: There should be no ongoing or pending litigation involving the company.
- No Outstanding Statutory Dues: The company must have cleared all its statutory dues, including taxes and statutory liabilities, with the relevant authorities.
- No Outstanding Loans or Liabilities: The company should not have any outstanding loans, secured or unsecured, or other financial liabilities.
- No Asset Ownership: The company should not own any assets or properties. If it does, these assets should be disposed of before applying for FTE.
- No Third-Party Interest: The company should not have third-party interests, such as secured creditors, in any of its assets.
- Compliance with Annual Filings: The company must be compliant with annual filing requirements. This includes filing annual returns and financial statements up to the date of cessation of business operations.
- Active Status: The company should not have been operating for a minimum period of one year before applying for FTE.
- No Securities Issued: If the company has issued securities, it should have either been delisted or should have made necessary arrangements to secure the interests of its shareholders and creditors.
- No Frauds or Misfeasance: The company and its directors should not have been involved in any fraudulent activities or misfeasance.
Once a company meets these eligibility criteria, it can apply for Fast Track Exit through the following steps:
- File Form FTE with the ROC, along with the necessary documents and fees.
- The ROC will review the application and, if satisfied, will issue a notice for striking off the name of the company.
- The company must advertise the ROC’s notice in two newspapers, one in English and one in the regional language of the company’s registered office.
- After the notice period, the ROC will strike off the company’s name from the register, and the company will cease to exist as a legal entity.
What are the benefits of Strike off- under how to close Private Limited Company.
Striking off a company, whether through voluntary strike off or the Fast Track Exit (FTE) mode in India, offers several benefits for business owners and stakeholders under certain circumstances. Here are some of the key benefits- under how to close private limited company.
- Closure of Non-Operational Companies: Striking off is an efficient way to close non-operational or dormant companies that are no longer economically viable. This avoids the administrative burden and costs associated with keeping such companies compliant with regulatory requirements- under how to close private limited company.
- Cost Savings: It reduces the ongoing compliance costs, such as annual filing fees, audit fees, and other operational expenses, which can be a significant financial relief for defunct or inactive companies- under how to close private limited company.
- Avoidance of Penalties: Closing a company through the proper legal process helps avoid penalties and legal consequences that may arise from non-compliance with regulatory requirements. This includes penalties for late filing of annual returns and financial statements.
- Legal Protection: It provides legal protection to directors and shareholders by formally dissolving the company. Once the company is struck off, the directors are generally relieved of their responsibilities and liabilities associated with the company’s activities.
- Reputation Management: Striking off a company can be a way to manage the reputation of the directors and shareholders, especially if the company faced financial difficulties or other issues.
- Closure of Unused Entities: For businesses with multiple entities or subsidiaries, striking off unused or redundant companies can streamline the corporate structure, making it easier to manage the active entities- under how to close private limited company.
- Tax Benefits: Closure of a company can result in certain tax benefits, such as the ability to offset losses against profits in other active entities or the ability to carry forward tax losses for future years- under how to close private limited company.
- Efficient Use of Resources: It allows resources tied up in non-operational companies, such as office space, employees, and management attention, to be redirected to more profitable ventures.
- Legal Compliance: By adhering to the formal process of striking off, companies demonstrate their commitment to legal compliance and corporate governance, which can be advantageous in future business endeavors.
- Clean Record: Striking off the company ensures that it does not have any ongoing obligations or liabilities, providing a clean record for the directors and shareholders.
It’s important to note that the benefits of striking off a company depend on the specific circumstances of the business and the jurisdiction in which it operates.
What is the procedure for the Strike off- under how to close private limited company.
The procedure for striking off a company involves several steps and compliance with legal requirements which are given below- under how to close private limited company.
- Conduct Board Meeting:
- The company’s board of directors must convene a meeting to approve the strike-off of the company.
- The board authorizes the submission of the application for company strike off to the Registrar of Companies (ROC).
- A notice is issued for holding a General Meeting to obtain shareholder approval.
- Closure of Liabilities:
- Before proceeding with the strike off, all outstanding liabilities, including debts and financial obligations, must be settled.
- The company should ensure that its creditor accounts are cleared, and this closure should be certified by a practicing Chartered Accountant (CA).
- Holding a General Meeting:
- The company conducts a general meeting of shareholders to pass a resolution for the removal of the company’s name from the registrar of companies.
- A minimum of 75% of shareholders (based on paid-up share capital) must support the resolution.
- Furnishing Documents and Forms:
- After obtaining the necessary approvals, the company must file E-form MGT-14 within thirty days of passing the resolution.
- Required documents, including the Fast Track Exit (FTE) Form and E-form STK-2, must be submitted to the ROC as part of the strike-off application.
- The company should have a Certified True Copy (CTC) of the Special Resolution and obtain No Objection Certificates (NOCs) from various government departments as necessary for the strike off.
When I cannot Strike Off the Company- under how to close private limited company?
- Recent Registered Office or Name Change: If the registered office has been shifted or the company’s name has been changed within the previous three months, it may hinder the strike-off process. The company may need to wait until this period has elapsed- how to close private limited company.
- Value-Added Disposal: If the company has recently made a significant disposal of property or rights immediately before ceasing its trade or business, it may affect the strike-off process. The timing and nature of such transactions can be a consideration- how to close private limited company.
- Unnecessary Actions: Taking actions that are not necessary or expedient for the purpose of striking off, ending the company’s affairs, or complying with legislative requirements can complicate the process or lead to regulatory issues- how to close private limited company.
- Tribunal Sanction: If the company has sought the sanction of the Tribunal for a compromise or agreement, but a decision has not yet been made, this may impact the strike-off process. The Tribunal’s decision may need to be awaited- how to close private limited company.
- Winding Up: If the company is in the process of being wound up under Chapter XX of the Companies Act, whether voluntarily, by the Tribunal, or under the Insolvency and Bankruptcy Code (IBC) 2016, striking off may not be feasible until the winding-up process is complete- how to close private limited company.
- Outstanding Government Liabilities: If there are outstanding government liabilities, such as income tax or GST dues, it may hinder the strike-off process. These liabilities often need to be cleared before striking off.
- Director’s Willingness: If all directors are not willing to proceed with the strike off, it can be a major obstacle. Consent and agreement among directors are typically required.
- Shareholder Consent: Similarly, if a significant portion (75%) of shareholders have not given their consent for the company strike off, it may not be possible to proceed.
Timeline for Company Strike Off- under how to close private limited company.
The timeline for striking off a company can vary depending on several factors, including the jurisdiction in which the company is registered and the specific circumstances of the company- how to close private limited company.
- Preparation and Board Meeting (1-2 weeks):
- The company’s board of directors holds a meeting to approve the strike-off.
- Resolutions are passed, authorizing the strike-off application and the notice for a General Meeting.
- Clearing Outstanding Liabilities (Varies):
- The time required to clear outstanding liabilities can vary significantly based on the nature and amount of debts and obligations. It may take weeks to several months.
- General Meeting (1-2 weeks):
- The company conducts a general meeting of shareholders and passes a resolution to strike off the company’s name.
- This step may take 1-2 weeks to arrange and obtain the necessary shareholder support.
- Furnishing of Documents and Forms (1-2 weeks):
- The company files E-form MGT-14 within thirty days of passing the resolution.
- Necessary documents, including the Fast Track Exit (FTE) Form and E-form STK-2, are submitted to the Registrar of Companies (ROC).
- Obtaining NOCs from various government departments may also take some time.
- ROC Review and Approval (Varies):
- The ROC reviews the application and documents submitted by the company.
- The time required for the ROC’s review can vary depending on the workload and efficiency of the ROC office. It may take a few weeks to a few months.
- Publication of Strike Off Notice (1-2 weeks):
- In some jurisdictions, it is necessary to publish a notice of the company’s intent to strike off in local newspapers or official gazettes.
- The publication process typically takes 1-2 weeks.
- Obtain Clearance Certificate (Varies)- how to close private limited company:
- After issuing the notice, the ROC may allow a specified period (usually 30 days) for any objections to be raised.
- If there are no objections and all requirements are met, the ROC will issue a clearance certificate for strike off.
- Company Strike Off (Varies):
- Once the clearance certificate is issued, the ROC will strike off the company’s name from the registrar.
- The timing of the strike off can vary depending on ROC procedures, but it typically occurs after obtaining the clearance certificate.
- Post-Strike Off Compliance (Varies):
- After strike off, the company may need to complete additional compliance, such as filing final tax returns and maintaining records for the mandated duration- under how to close private limited company.
Document Requirement to Strike Off Company- under how to close private limited company.
- Form STK-3 and Indemnity Bond: Form STK-3 is the application form used for striking off a company in India. It should be duly filled and submitted to the Registrar of Companies (ROC). The indemnity bond is typically executed by all the directors to indemnify any third parties in case of future claims- under how to close private limited company.
- Certified Statement of Assets and Liabilities: This statement, signed by a Chartered Accountant (CA), provides a comprehensive overview of the company’s assets and liabilities up to the date of cessation of business operations. It is essential for financial transparency during the strike-off process- under how to close private limited company.
- Affidavit and Certified True Copy (CTC) of Special Resolution: The affidavit and CTC of the special resolution are documents affirming the accuracy and legality of the resolution passed by the shareholders to strike off the company. Each director typically signs these documents- how to close private limited company.
- NOC from Different Departments: No Objection Certificates (NOCs) from various government departments, such as Income Tax, GST, ESI, and PF, demonstrate that the company has cleared its statutory dues and obligations with these departments- how to close private limited company.
- Statements on Pending Litigations: Any statements or documents related to pending litigations involving the company are required to provide a clear picture of any legal disputes that may impact the strike-off process- how to close private limited company.
- PAN Card and Digital Signature Certificate (DSC) Tokens: PAN cards and DSC tokens are essential for identification and digital authentication purposes during the submission of documents to regulatory authorities- how to close private limited company.
What is Company Strike Off Certificate- under how to close private limited company.
A Company Strike Off Certificate, also known as a Certificate of Dissolution or Certificate of Strike Off, is a legal document issued by the relevant government authority, often the Registrar of Companies (ROC) or a similar entity, upon the successful completion of the process to strike off a company’s name from the official register. This certificate signifies that the company has been officially dissolved and no longer exists as a legal entity.
The Company Strike Off Certificate serves as evidence that all legal formalities and obligations associated with closing the company have been fulfilled, and the company has been removed from the registrar’s records- under how to close private limited company. It may contain important information such as:
- The name and registration number of the dissolved company.
- The date on which the company was officially struck off from the register.
- A statement confirming the dissolution of the company.
This certificate is a crucial document that can be used for various purposes, including- how to close private limited company.
- Legal Proof: It provides legal proof that the company has been dissolved and is no longer in existence. This can be important to protect the directors and shareholders from future legal liabilities associated with the company’s operations.
- Tax De-registration: It can be submitted to tax authorities to de-register the company for tax purposes, ensuring that the company is no longer liable for tax filings.
- Closure of Bank Accounts: Banks often require a Company Strike Off Certificate to close the company’s bank accounts.
- Ending Legal Obligations: It helps in terminating any ongoing legal obligations or responsibilities associated with the company- how to close private limited company.
- Transfer of Assets: If any assets of the company need to be transferred or sold after dissolution, this certificate may be required as proof of the company’s legal status- how to close private limited company.
- Creditors and Debtors: It can be presented to creditors and debtors as evidence of the company’s dissolution and the finality of financial matters- how to close private limited company.
What if I discontinue business without the company strike off- under how to close private limited company.
Discontinuing business operations without officially striking off your company can have various implications, depending on your jurisdiction and the specific circumstances of your company.
- Ongoing Compliance Obligations: In many jurisdictions, companies are required to adhere to ongoing compliance obligations, even if they are not actively conducting business. This includes filing annual returns, financial statements, and paying annual fees. Failure to meet these requirements can result in penalties, fines, and legal consequences- how to close private limited company.
- Legal Liability: As long as the company remains registered and active, its directors and shareholders may continue to have legal responsibilities and liabilities associated with the company’s activities. This includes obligations related to tax, contracts, creditors, and potential legal disputes- how to close private limited company.
- Incurring Costs: Maintaining a registered company often involves costs, such as annual fees and expenses related to compliance and record-keeping. These costs can accumulate over time, even if the company is not generating revenue.
- Creditors and Debtors: If the company has creditors or debtors, they may still have claims or obligations related to the company. Not striking off the company may leave these matters unresolved- how to close private limited company.
- Public Records: The company’s information, including its financial status and compliance history, may remain part of the public record, potentially affecting the company’s reputation- how to close private limited company.
- Future Business Activities: If you plan to engage in business activities again in the future, it may be more challenging to do so with an existing company that has accumulated compliance issues and liabilities. This can create complications when seeking funding or entering into contracts- how to close private limited company.
- Complex Dissolution Process Later: If you decide to dissolve the company at a later date, the process may become more complex and time-consuming, especially if compliance obligations have been neglected- how to close private limited company.