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2019

Voluntary Liquidation of a Private Limited Company

Voluntary Liquidation of a Private Limited Company

Introduction:

Company is a form of business which comes with many compliance requirements. Unlike other forms of business like Proprietorship or Partnership Firm which have very less compliance burden, companies have to comply with lot more regulations. Introduction of Companies Act, 2013 has also increase this compliance burden.

This entails an increasing cost in the form of Government fees, late payment interest & penalty etc. The businessmen have to hire consultants to manage these requirements which in turn further increase their cost.

In the face of global economic slowdown, if the business is not performing well, this additional compliance would only increase losses of the business instead of adding any value. Hence, many small companies prefer to switch to other forms of business like Partnership Firm. In this article we will discuss the process of closing down a Pvt. Ltd. company.

Increased Compliance on Companies:

The Government has introduced some new compliance like:

  • MSME Form 1 (For MSME Payables)
  • DPT-3 (For deposits or transactions not considered as deposits)
  • BEN-2 (For beneficial shareholder’s information)

Increased Late Fees:

Late Fees of some forms have been increased to Rs. 100 per day in case of delay:

  • MGT-7 (Annual Return)
  • AOC-4 (Financial Statements)

Step by Step Process of Closing a Company:

Step 1: Discharge all Liabilities of the Company:

  • Application must be filed with the Registrar of Companies (ROC) for closing a Company.
  • However, before liquidating a company, one must ensure that all the outstanding liabilities must be paid off.
  • There should be no pending liabilities while closing the company.

Step 2: Shareholders’ Consent:

  • Since shareholders are the owners of the Company, law provides that Consent of at least 75% of the members of the Company (in terms of paid-up share capital) shall be taken before filing closure application.
  • Consent of 75% is to be seen based on the amount of share capital and not as per number of members.

Step 3: File e-Form STK-2:

  • The Company needs to file e-Form STK-2 (Form for striking of name of the Company) with the ROC along with a fee of Rs. 5,000 (Rupees five thousand).

The following details must be provided in e-Form STK-2:

  • A statement of account in Form STK-8 showing the assets and liabilities of the Company made up to a day, not more than 30 days before the date of filing e-Form STK-2. The attached statement of account shall be duly certified by a Chartered Accountant (CA).
  • Copy of Board resolution authorizing filing of e-Form STK-2.
  • Copy of Special Resolution or copies of Consent of 75% of the members of the Company in terms of paid up share capital.
  • Indemnity Bond signed by each Director of the Company in Form STK-3 indemnifying future legal claims against the Company, loss to any person due to closing of Company.
  • Affidavit by each Director of the Company in Form STK-4.
  • Statement in relation to pending litigations involving the Company.

Note: Once the application is approved by the Registrar of Companies, the status of the company shall be marked as “struck off” from “active”.

Other Important Points to consider:

  • Before filing e-Form STK-2, all the overdue returns (MGT-7, AOC-4) which were due till the financial year in which the company ceases to carry of its business.
  • e-Form STK-2 is also required to be certified by a Chartered Accountant, Company Secretary or Cost Accountant in whole time practice.
  • A Section 8 Company (NPO Company) cannot be strike off by above procedure.
  • No e-Form STK-2 can be filed by such Company:
    • Which has changed its name or shifted its registered office from one state to another in last three months
    • Which is being wound up under the Insolvency and Bankruptcy Code, 2016.
    • Which has made application for Compromise or Arrangement and the matter is not finally concluded.
  • The Company which has filed e-Form STK-2 shall also place the application on its website, if any, till the disposal of the application.
  • A Dormant Company can also file this form in order to get closed.
  • Till the time e-Form STK-2 will be pending for approval, no other form can be filed by the Company with ROC.

Read more about Company Act here.

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