Closing Of Private Limited Company: Strike-Off, Winding Up

Once the company is closed following the proper procedure, its name is officially removed from the ROC records, and it is no longer liable to file annual returns, maintain compliance, or carry out business activities. Understanding How to Close Private Limited Company, Strike-Off  Winding Up helps directors and shareholders complete this process efficiently and avoid future legal complications.

Closure is not just about stopping operations—it is a legal process of winding up liabilities, clearing debts, and formally striking off the company’s name. This ensures that directors and shareholders are released from future obligations and penalties. For company closure and company registration you can connect with the Registration Guru.

For example:

• If a company has stopped business activities and doesn’t close legally, it must still file annual returns and pay compliance fees. Failure to do so may result in penalties or even disqualification of directors.

• By applying for closure, the company is formally dissolved and directors are free from future compliance requirements.

When is a Company Liable to Close?

A private limited company may be required or eligible to close in certain situations, either voluntarily by the owners or compulsorily by law. Below are the main conditions when a company becomes liable to close:

1. No Business Operations

   • If a company has not started its business within one year of incorporation.

   • If it has been inactive (no business transactions) for the last two financial years.

2. Continuous Losses or Financial Infeasibility

   • When the company is unable to generate profits and cannot sustain operations.
     In case of insolvency or inability to pay creditors.

3. Non-Compliance with Legal Requirements

   • If the company fails to file annual returns or financial statements with the Registrar of Companies (ROC) for two consecutive financial years.

   • Repeated violations of the Companies Act, 2013.

4. By Order of Tribunal / Court

   • In cases of fraud, misconduct, or fraudulent business activities.

   • When the company is found guilty of activities against public interest or law.

5. Voluntary Decision by Shareholders

   • Shareholders may decide to shut down the company through a special resolution when they no longer wish to continue business.

6. Dormant or Shell Companies

   • Companies registered but not carrying out genuine business activities may be directed by ROC for strike-off.

Types of Company Closure in India

Closing a private limited company in India can be done in different ways depending on the situation of the business. Under the Companies Act, 2013, there are mainly three ways a company can be closed:

1. Voluntary Closure (Strike Off Method)

 Voluntary closure means when the directors and shareholders themselves decide to shut down the company because it is no longer active or required. The company applies to the Registrar of Companies (ROC) for striking off its name from official records. This is done when the company has no debts, no liabilities, and no ongoing business operations.

• In this method, the shareholders and directors decide to close the company willingly.

• It is applicable when the company has no liabilities, no pending dues, and is not carrying on any business.

• The company needs to pass a special resolution, settle accounts, and file an application in Form STK-2 with the Registrar of Companies (ROC).

• Once approved, the ROC strikes off the company’s name from its register.

✅ Best for: Dormant or inactive companies that want a hassle-free exit.

2. Compulsory Closure (By Order of Tribunal / NCLT)

Compulsory closure means when a company is forced to shut down by the National Company Law Tribunal (NCLT) or a court. This usually happens if the company is involved in fraud, unlawful practices, continuous non-compliance, or activities against public interest. In this case, an official liquidator is appointed to settle debts and wind up the company.

• This is a forced closure when the company is directed by the National Company Law Tribunal (NCLT) or a court.

• Reasons may include:

  • Fraudulent activities or unlawful operations.

  • Failure to file annual returns for consecutive years.

  • Involvement in misconduct or public interest violations.

• The tribunal appoints an official liquidator to wind up the company’s affairs, settle liabilities, and dispose of assets.

✅ Best for: Companies engaged in fraud, mismanagement, or continuous non-compliance.

3. Fast Track Exit (FTE) Scheme

The Fast Track Exit (FTE) Scheme is a simpler and quicker way to close inactive or dormant companies. It is available to companies that have not started business since incorporation or have not carried out operations in the last two financial years. The company can directly apply to ROC for strike-off without going through lengthy procedures.

• Introduced by the Ministry of Corporate Affairs (MCA) to allow quick closure of defunct or inactive companies.

• Applicable when a company:

  • Has not commenced business since incorporation, or

  • Has not carried out operations in the last two financial years.

• The company can apply directly to ROC through Form STK-2 with required documents.

• The process is simpler and faster compared to normal closure.
   

✅ Best for: Dormant companies with no assets, liabilities, or ongoing business.

Comparison Table of Closure Types

Process of Closure of a Private Limited Company

The closure of a private limited company involves several legal steps as per the Companies Act, 2013. Here’s the step-by-step process:

1. Conduct a Board Meeting

• Call a board meeting with directors.

• Pass a resolution to initiate the closure process.

• Fix a date for the general meeting of shareholders.

2. Pass a Special Resolution

• Hold a shareholders’ meeting.

• Pass a special resolution with the consent of at least 75% of shareholders.

• Record and prepare the resolution for filing.

3. Clear All Liabilities

• Settle outstanding debts, taxes, employee salaries, and dues of creditors.

• Dispose of assets (if any) to clear pending obligations.

4. Prepare Documents for ROC

The company needs to prepare and sign:

• Affidavit from directors confirming details.

• Indemnity Bond indemnifying ROC against future claims.

• Statement of Accounts (not older than 30 days).

• Copy of Board Resolution and Special Resolution.

5. File Application with ROC

• Form STK-2 should be submitted to the Registrar of Companies (ROC).

• Attach all required documents, affidavits, and resolutions.

• Pay the prescribed government fees.

6. Verification by ROC

• The ROC examines the application and verifies compliance.

• If satisfied, the ROC publishes a notice of strike-off in the official gazette.

7. Strike Off & Dissolution

• After the notice period, the company’s name is struck off from ROC records.

• The company stands dissolved and ceases to exist as a legal entity.
   

Important Documents for Company Winding Off

1. Board Resolution

   • A resolution passed by the company’s board of directors approving the initiation of the closure process.

   • It sets the date for the shareholders’ meeting and approves filing with ROC.

2. Special Resolution of Shareholders

   • Approval from at least 75% of shareholders to close the company.

   • This is a mandatory legal requirement for voluntary closure.

3. Affidavit from Directors

   • A sworn statement confirming that the company has no pending liabilities, debts, or disputes.

   • It ensures ROC that the closure is genuine.

4. Indemnity Bond

   • Directors submit a bond indemnifying ROC against any future claims or legal issues related to the company.
      

5. Statement of Accounts

   • A financial statement showing the company’s assets, liabilities, and clearance of debts.

   • Must be recent (usually not older than 30 days).

6. PAN Card and Identity Proofs of Directors

   • To verify the identity of directors and ensure legal compliance.

7. No Objection Certificates (NOCs)

   • From creditors, banks, or government authorities (if applicable) confirming that there are no pending dues.

8. Form STK-2

   • The official application form filed with the Registrar of Companies (ROC) for striking off the company name.
      

Cost of Winding Off a Company

The cost of closing a private limited company depends on the type of closure—voluntary closure, compulsory closure, or fast-track exit. Each has different fees, government charges, and professional expenses.

1. Voluntary Closure (Strike Off Method)

• ROC Filing Fees: ₹10,000 – ₹20,000 (for submitting Form STK-2).

• Professional Charges: ₹10,000 – ₹30,000 (for preparing resolutions, affidavits, and filings).

• Other Expenses: ₹2,000 – ₹5,000 (stamp duty on resolutions, notarization, miscellaneous).

• Total Estimated Cost: ₹20,000 – ₹55,000 approx.

✅ Note: This is suitable for companies with no liabilities or pending dues and is the most cost-effective method.

2. Compulsory Closure (By Order of Tribunal / NCLT)

• Tribunal Fees: Costs for filing petitions in NCLT may vary from ₹15,000 – ₹50,000 depending on the case.

• Professional Charges: ₹25,000 – ₹1,00,000+ (for legal support, liquidator fees, compliance work).

• Other Expenses: Court filing, notice publication, and miscellaneous legal expenses may add ₹5,000 – ₹20,000.

• Total Estimated Cost: ₹45,000 – ₹1,70,000+ approx.

✅ Note: This method is more expensive and time-consuming, as the tribunal or court supervises the winding-up process.

3. Fast Track Exit (FTE) Scheme

• ROC Filing Fees: ₹10,000 – ₹20,000 (similar to voluntary closure).

• Professional Charges: ₹10,000 – ₹25,000 (for preparing Form STK-2 and supporting documents).

• Other Expenses: Minimal (stamp duty, notarization).

• Total Estimated Cost: ₹20,000 – ₹45,000 approx.

Comparison Table of Costs

Fees for Private Limited Company Closure

Frequently Asked Questions (FAQs)

Q1. What is the process to close a private limited company in India?
A1. The process involves (i) passing a board resolution, (ii) approving a special resolution by shareholders, (iii) settling all liabilities, (iv) filing Form STK-2 with the ROC along with required documents, and (v) ROC review and name strike-off.

Q2. What is Form STK-2 used for?
A2. Form STK-2 is the application used by a company to request the Registrar of Companies to strike off the company’s name from the register, thereby formally closing the company.

Q3. Can I close a company that has debts or liabilities?
A3. No. All outstanding debts, liabilities, employee dues, taxes, creditor payments, and obligations must be cleared before applying for closure. The company must present a clean financial status.

Q4. How long does it take to close a private limited company?
A4. The winding-up or strike-off process usually takes around 3 to 6 months, depending on how quickly compliance, verifications, and document filings are completed.

Q5. What are the required documents to close a company?
A5. Key documents generally include: board resolution, special resolution, affidavit from directors, indemnity bond, statement of accounts (recent), identity proofs of directors, no objection certificates if needed, and Form STK-2.

Q6. What is Fast Track Exit (FTE)?
A6. Fast Track Exit is a simplified procedure for dormant or inactive companies (those having no business operations or whose accounts have not been active). It allows for quicker closure with fewer formalities.

Q7. What happens if I don’t legally close my company?
A7. The company will continue to be liable for annual filings, audits, penalties, and legal consequences. Directors may also face disqualification or fines for non-compliance.

Q8. Is professional help necessary to wind up a company?
A8. While not mandatory, professional help (like from chartered accountants, company secretaries, or firms such as RegistrationGuru) ensures all legal formalities are handled correctly, reduces errors, and speeds up the process.

Q9. Can I “strike off” a company if it has never commenced operations?
A9. Yes. If a company has not started its business or has remained inactive, it can apply for closure using the strike-off or Fast Track Exit method, subject to compliance with statutory requirements.

Q10. What are the costs involved in closing a private limited company?
A10. Costs may include ROC filing fees, professional service charges, stamp duty, notarization fees, and any legal or tribunal fees (in case of compulsory winding-up). The total cost can vary depending on location and complexity.