How to Closing a Private Limited Company means legally ending its business operations and removing its name from the Registrar of Companies. A company can be closed through strike off, voluntary winding up, or compulsory winding up, depending on its financial and legal status. The process involves board approval, filing required forms with the MCA, settling liabilities, and submitting necessary documents.
Meaning of Closing a Private Limited company in India?
Closing a private limited company means ending its existence as a legal entity. Once closed, the company stops all business operations, settles its liabilities, and ceases to exist in the eyes of the law.
There are main two ways to close a company:
-
Strike Off
-
Winding-Up
Each method of winding off depends on a company’s financial and legal status.
Difference Between Strike Off and Winding Up
Understanding the difference between strike off and winding up is crucial before deciding how to close a private limited company.
Strike Off
A strike off is an administrative process where a company’s name is removed from the MCA (Ministry of Corporate Affairs) register without involving a court. This process is simpler and faster but can only be used in specific cases.
- Applicable when the company has no liabilities or pending legal issues
- Ideal for small companies that haven’t started business or are inactive
- Cost-effective and less complex
Winding Up
Winding up is a court-supervised or compulsory process to close a company that has assets, liabilities, or disputes. It is more detailed and time-consuming.
- Used when the company has creditors or liabilities
- Can be voluntary or compulsory
- Must follow strict legal procedures
Example:
ABC Technologies Pvt. Ltd. has outstanding loans and creditor claims. The board decides to close the company and liquidate assets to repay debts. Thus, it must follow the winding up process.
Types of Company Closure
There are various types of company closure depend on the factors that company comes under which circumstances:
1. Strike Off (Voluntary Closure)
Strike off means removing a company’s name from the Registrar of Companies (ROC). It is used when a company is inactive, has no business operations, and has no assets or liabilities. After strike off, the company legally stops existing.
When used:
- Company has no business activity
- No assets or liabilities
- No pending legal cases
Key point:
Directors apply to MCA using Form STK-2.
2. Voluntary Winding Up
Voluntary winding up is when the company decides on its own to close the business. The directors and shareholders agree to stop operations and settle all debts. This method is used when the company wants to close in a legal and orderly manner.
a) Members’ Voluntary Winding Up
b) Creditors’ Voluntary Winding Up
3. Compulsory Winding Up
Compulsory winding up happens when a court or the National Company Law Tribunal (NCLT) orders the company to close. This usually occurs due to failure to pay debts, legal violations, or non-compliance with company laws.
When applicable:
-
Company fails to pay debts
-
Serious legal violations
-
Non-compliance with statutory filings
-
Company acts against public interest
4. Fast Track Exit (FTE) Scheme
The Fast Track Exit (FTE) Scheme is a government process that allows inactive companies to close quickly. It applies to companies that have not started business and have no assets or liabilities, helping them exit without lengthy legal procedures.
Eligibility:
-
No business operations
-
No assets or liabilities
-
No pending compliances
5. Insolvency and Bankruptcy Process
Insolvency and bankruptcy winding up applies when a company is unable to pay its debts. Under the Insolvency and Bankruptcy Code (IBC), creditors or the company can start proceedings, which may lead to liquidation of the company’s assets to repay debts.
Key points:
Steps to Close a Private Limited Company
The procedure for closing off a company are given below:
Strike Off Process
Step 1: Check Eligibility
Before applying for strike off, ensure that:
-
The company has no business operations
-
There are no assets or liabilities
-
No pending legal cases or dues
-
All statutory filings (if any) are completed
Step 2: Hold a Board Meeting
A board meeting is conducted to:
Step 3: Close Bank Accounts
The company must:
Step 4: Prepare Required Documents
Documents generally include:
-
Board resolution
-
Affidavit and indemnity bond from directors
-
Statement of assets and liabilities
-
PAN, Aadhaar, and company incorporation documents
Step 5: File Form STK-2 with MCA
Submit Form STK-2 on the MCA portal along with:
Step 6: Public Notice by MCA
MCA publishes a notice to inform the public and allow objections, if any.
Step 7: Company Name Removed
If no objections are received, the ROC strikes off the company name and publishes the closure in the Official Gazette.
Winding Up Process
Step 1: Board Meeting and Resolution: Directors call a board meeting and pass a resolution for winding up.
Step 2: Declaration of Solvency: If the company is solvent, a Declaration of Solvency must be submitted by directors.
Step 3: Notice to Registrar: File Form MGT-14 to notify the Registrar of Companies (ROC) about the winding-up resolution.
Step 4: Appointment of Liquidator: A Liquidator is appointed to manage asset sale and creditor payments.
Step 5: Liquidation of Assets: The company’s assets are sold to repay:
Step 6: Final Report and Dissolution: The liquidator prepares a final report. Once approved, the company is dissolved and removed from the MCA register.
Documents Required for Company Closure
Here’s a basic checklist. Specific requirements may vary:
|
Document Name
|
Purpose
|
|
Board Resolution
|
Approves company closure
|
|
Form STK-2
|
For strike off application
|
|
Form MGT-14
|
Notifies ROC
|
|
Declaration of Solvency
|
If voluntary winding up (solvent case)
|
|
Financial Statements
|
For the last financial year
|
|
List of Creditors
|
Required for winding up
|
|
Affidavit by Directors
|
No pending transactions or liabilities
|
|
Public Notice / Newspaper Ad
|
MCA requirement for transparency
|
When Is a Company Liable for Winding Up?
A private limited company may be liable for winding up if:
-
Statutory compliance failures
-
Creditor application due to defaults
-
NCLT order based on legal violations
Example:
Services Pvt. Ltd. has defaulted on loan repayment and has multiple creditor claims. The creditor applies to NCLT for compulsory winding up, which may be granted after legal scrutiny.
What is the Cost of a Company Winding Off?
Here is the fee for Company winding off are given in table form:
|
Cost Component
|
Estimated Amount
|
Remarks
|
|
Government Fees
|
₹0
|
No government fee for strike-off under Companies Act
|
|
Professional Fees (CA/CS)
|
₹5,000 – ₹15,000
|
Depends on service provider and complexity
|
|
Pending ROC Compliance Fees
|
Variable
|
Applicable if annual filings are pending
|
|
Director DIN KYC Penalty (if any)
|
Variable
|
Extra cost if DIN KYC not filed
|
|
Asset & Liability Clearance
|
As applicable
|
Required before closure
|
|
Total Estimated Cost
|
₹5,000 – ₹20,000
|
Subject to compliance status
|
Important Considerations
Tax and Compliance
Before closing, ensure:
Liabilities and Debts
Outstanding liabilities must be settled fully to avoid legal issues against directors.
Legal Assistance
Working with a professional (like RegistrationGuru.in) helps avoid mistakes that can delay the closure process.
Summary
Closing a private limited company is a significant decision and involves clear legal steps. Whether opting for strike off or a winding-up process, understanding the requirements, documents, and timeline helps avoid trouble.
With proper planning, professional guidance, and compliance, you can successfully and legally close your private limited company in India.