A Private Limited Company is a type of company that is privately held and has limited liability. It is a separate legal entity from its owners, which means that the company’s finances are separate from the personal finances of its owners. The shareholders of a private limited company cannot trade their shares publicly, and the company cannot issue a prospectus inviting the public to subscribe to its shares Here are some of the characteristics of a Private Limited Company:
- Members: A private limited company must have a minimum of two members, while the maximum members limit is 200.
- Directors: A private limited company must have a minimum of two directors, while the maximum number of directors is 15.
- Limited liability: The liability of all members or shareholders of a private limited company is limited. It means that when the company faces a loss under any circumstance, its shareholders will not be liable to sell their personal assets for payment. They will be liable to repay for only the amount of the shares subscribed or the guaranteed amount they have agreed to pay.
- Perpetual succession: Perpetual succession means the company will continue to exist in the eyes of the law irrespective of insolvency, bankruptcy or death of any of its members. The life of the company continues to exist forever.
- Authorised and paid-up share capital: The private limited company must have an authorised share capital of Rs.1 lakh. Due to an amendment to the Companies Act, it need not have any minimum paid-up share capital. Before the amendment of the Act, it needed to have a minimum paid-up capital of Rs.1 lakh, which has now been removed.
- Name: A private limited company name must have the words ‘private limited’ after its name. For example, if the company name is ABC, it must write its name as ‘ABC Pvt. Ltd’ in all its official communications and the company registration form.
- Prospectus: A prospectus is a detailed statement providing the status of company affairs. A company issues a prospectus to the public to subscribe to the company share.
Reasons for Closing a Private Limited Company
There can be several reasons why a private limited company in India may need to be closed. Here are some of the most common reasons:
- Financial difficulties: If a company is facing financial difficulties and is unable to pay its debts, it may need to be closed.
- Discontinuation of business: If the founders of the company decide to discontinue the business, the company may need to be closed.
- Regulatory changes: If the company foresees challenges due to regulatory changes, it may need to be closed.
- Market conditions: If the company is unable to see growth due to the changing market environment, it may need to be closed.
- Heavy losses: If the company is already running into heavy losses and is cash-strapped, it may need to be closed.
If you are considering closing your private limited company in India, there are several ways to do so, including selling the company, voluntary winding up, compulsory winding up, and defunct company winding up. The process for each of these methods is different, and it is important to understand the requirements and procedures involved before proceeding. You may want to consult with a professional consultant to ensure a smooth closure while avoiding future liabilities. I hope this helps! Let me know if you have any other questions.
How to Close a Private Limited Company?
There are two main ways to close a private limited company in India: striking off and winding up. The best method for you will depend on your specific circumstances.
Striking off:
- This is a faster and simpler process for companies that are defunct (meaning they’re no longer operating and have no outstanding debts or liabilities).
- You can apply for strike off through the Ministry of Corporate Affairs (MCA) portal.
- The process involves filing certain documents, complying with notice periods, and paying fees.
- Once approved, the company will be removed from the Register of Companies.
Winding up:
- This is a more complex process for companies that are still solvent (meaning they can pay their debts) or insolvent (meaning they cannot pay their debts).
- There are two types of winding up:
- Member’s Voluntary Winding Up: This is initiated by the shareholders when they want to dissolve the company voluntarily.
- Creditor’s Voluntary Winding Up: This is initiated when the company is unable to pay its debts.
- Both types of winding up involve appointing a liquidator to manage the company’s assets and liabilities.
- The process can take several months or even years to complete.
Importance of a systematic closure process
Closing a business can be a complex and emotional process. There are many things to consider, from notifying employees and customers to settling debts and taxes. That’s why having a systematic closure process is essential. A well-defined plan can help ensure that everything is done correctly and efficiently, minimizing stress and disruption.
Here are some of the benefits of having a systematic closure process:
- It helps you stay organized and on track. With a plan in place, you’ll know exactly what steps you need to take and when you need to take them. This can help you avoid missing important deadlines or tasks.
- It helps you communicate effectively with stakeholders. When you know what’s going on, you can keep employees, customers, creditors, and other stakeholders informed about the closure process. This can help to build trust and goodwill.
- It helps you minimize risks. A systematic closure process can help you identify and mitigate potential risks, such as legal or financial problems.
- It can save you money. By being organized and efficient, you can save time and money on the closure process.
Here are some key steps in a systematic closure process:
- Develop a plan. This should include a timeline of tasks, a budget, and a list of responsible parties.
- Notify stakeholders. Let employees, customers, creditors, and other stakeholders know that the business is closing.
- Settle debts and liabilities. Pay off any outstanding debts and liabilities.
- Cancel licenses and permits. Cancel any business licenses or permits that you no longer need.
- Distribute assets. Sell or distribute any remaining assets.
- File final tax returns. File your final tax returns and pay any outstanding taxes.
- Dissolve the business. This may involve filing paperwork with the government.
Of course, the specific steps involved in your closure process will vary depending on the nature of your business and your local laws. But by following a systematic approach, you can make the process as smooth and stress-free as possible.
Procedure for Terminating a Private Limited Company through Strike-Off in India
Striking off a private limited company in India under Section 560 of the Companies Act, 2013 is a simpler and faster option compared to winding up, provided the company meets certain eligibility criteria. Here’s a step-by-step guide to the procedure:
Eligibility:
- The company must be defunct (meaning it ceased operations and has no ongoing business activity).
- There should be no outstanding liabilities towards creditors, employees, or any other party.
- All statutory filings (annual returns, financial statements, etc.) must be up-to-date.
- No legal proceedings should be pending against the company.
Steps:
- Board Resolution: Pass a resolution at the Board of Directors’ meeting, expressing the intention to strike off the company and authorizing a director to file the application.
- Affidavit: Prepare and file an affidavit with the Regional Director (RD) at the Registrar of Companies (ROC) under whose jurisdiction the company is registered. The affidavit must declare the company’s defunct status and compliance with all statutory requirements.
- Newspaper Advertisement: Publish a notice in two newspapers, one local and one national, notifying the public of the intention to strike off the company and inviting objections within two months.
- Filing Notice with ROC: After two months from the advertisement date, if no objections are received, file a notice with the RD at the ROC stating that no objections have been filed.
- Order of Strike-Off: Upon verification and satisfaction, the RD will issue an order striking off the company’s name from the Register of Companies. The official publication in the Gazette will signify the complete dissolution of the company.
Fast Track Exit Mode:
For companies meeting specific criteria, such as being dormant for three years or having no liabilities and assets, the Ministry of Corporate Affairs (MCA) offers a fast-track exit mode under Section 248 of the Companies Act. This simplified process expedites the strike-off process with reduced fees and timelines.
Company Closure Process in India
The process of winding up a company in India is governed by the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. The process of winding up a company can be done through the following modes:
- Voluntary winding up: This mode of winding up can be initiated by the shareholders of the company.
- Compulsory winding up: This mode of winding up can be initiated by the Tribunal.
- Defunct company winding up: This mode of winding up is applicable to companies that have ceased to operate for more than one year and have no assets or liabilities.
The process of winding up a company can be complex and time-consuming. It is important to consult with a professional consultant to ensure a smooth closure while avoiding future liabilities. I hope this helps! Let me know if you have any other questions.
Documents for Closure of Company in MCA
Following are the documents required for closure of company –
- Acceptance by the Company’s Creditors
- A valid indemnity bond (in Form STK 3) signed by each director
- A Chartered Accountant-certified statement of liabilities listing all assets and liabilities of the companies
- A Form STK 4 affidavit signed by each company director
- CTC of Special Resolution, officially executed by all of the company’s directors
- The Directors’ electronic signature
- Directors’ Aadhaar and PAN cards
- Director’s Affidavit and Letter of Consent
Planning to strike off your private limited company? Our team of experienced lawyers is here to help. Schedule a free consultation today and receive personalized guidance on the strike-off process for your private limited company.
How the ROC operates?
The Registrar of Companies (ROC) will publish a public notice in Form STK-6 after receiving an application to remove a company’s name from the list. The thirty days following the notice’s publication serve as the timeframe during which objections can be submitted.
Posting of Notice on Official Platforms
The notice indicating that the company is going out of business is also posted on the Ministry of Corporate Affairs’ website. In addition, it is published in the official gazette and a prominent English newspaper. Moreover, the notice is published in a vernacular newspaper, which is selected based on the location of the company’s registered office.
Communication with Regulatory Authorities
The notice provides regulatory authorities with information about the company’s closure. Examples of such authorities include the Income Tax Department, the Service Tax authorities, and any other entities with jurisdiction over the company. The ROC regularly seeks objections from these departments as part of the process.
Dissolution of the Company
After completing the necessary procedures, the company will be dissolved, and the name will be changed. This is achieved by publishing a notice in the official gazette using Form STK-7. Once this notice is published, the corporation is considered dissolved. The notice is also published on the Ministry of Corporate Affairs’ official website, making it accessible to the public. The date of the company’s dissolution marks the end of its operations as a single entity, and the certificate of incorporation is deemed null and void.
Restrictions on Voluntary Striking Off
There are specific limitations on a firm’s ability to voluntarily strike off. A firm cannot opt for a voluntary strike-off if:
- The organization has changed its name.
- The registered office has been shifted from one state to another.
- The firm has disposed of property or rights immediately before ceasing trade or has conducted business solely for the purpose of disposal or gain.
- The firm has engaged in any activity beyond what is necessary for submitting the application, closing the company’s affairs, or complying with statutory requirements.
Ineligibility for Voluntary Striking Off
A firm is also ineligible for voluntary striking off if:
- The applicant has submitted a request to the Tribunal for the approval of a compromise or arrangement, and the processes regarding the same have not yet concluded.
- The firm is being wound up either by the Tribunal or voluntarily under Chapter XX.
- The firm has been removed from the list due to non-compliance with relevant regulations.
- The firm is classified as a “Vanishing firm” and has been subjected to an inspection or inquiry, whether completed, ongoing, or awaiting a ruling.
Does the prosecution have a case?
- holds a compounding application that is currently pending
- Holds unpaid debts and obligations
- Has a Section 8 Company Status
- The individual has not yet fulfilled any formality that has been mandated by the Registrar of Companies, the Inspector, or the Court.
Objection Period and Post-Closure Responsibilities
An objection plea is allowed to be considered for a period of thirty days before the company officially closes its doors. During this period, any departments, businesses, or individuals who disagree with the decision to close the company must come forward and express their objections.
Additionally, the closure is publicized in the media to raise awareness among individuals and potential stakeholders about the impending situation. The directors of the company remain responsible for any complaints lodged against them indefinitely, even after the company has shut down.
The government also has the authority to lodge a complaint at any time during or after the closure process. Employees are able to file complaints within a time span of up to twenty years. It is made clear that the directors will be accountable for grievances following the liquidation of the business when the application for Strike Off is being submitted.
Need Help or Support?
If you have any questions or need assistance during this process, don’t hesitate to reach out. Contact us for help and support, and our team will be happy to guide you through every step.
