A private limited company necessitates to be closed, or windup, meanwhile there are no changes or the Directors of the company, is not willing to continue its services. Any private limited company usually can be shut by both ‘voluntary’ and ‘compulsory elements’. Winding up of a company is a pursuit which involves bargaining all the assets, paying off the bankers and administering the remaining assets to the shareholders of the company. It is always challenging to start a business/ company.
The Ministry of Corporate Affairs has notified rules 2020, for winding up small businesses without having to go to a tribunal, under a provision in the Companies Act that offers an alternative to the commonly used liquidation procedure under India’s bankruptcy code. The scope of Company Law in India is unrestricted and extensive; it carries into account the depth of winding up of a business and liquidation of its assets.
Free from debts after liquidation:Once the liquidation process is over, the directors and all company officials are free from all creditor liabilities and pressure.
Avoid legal action against the company:If the resolution is passed voluntarily by directors, they will neglect legal action taken by the court or the tribunal and provide a platform to company directors to concentrate on other business opportunities.
Low cost charged for liquidation:The cost or expense involved in the liquidation process is relatively low, as charges will be applicable on the sale of assets.
All lease agreements will be cancelled:If any company or entity has entered into a lease for a prescribed time, during the liquidation process, it will terminate all the T&C of the lease.
Advantages for creditors:After a prolonged struggle, creditors will benefit from the liquidation process as they will be eligible for a default payment, with respect to the proposition of credits given by all creditors.
Winding up of a Private Company can be done in 3 ways. They are as following:
Selling company shares: By selling the prevalence company shares to another person or entity, the shareholders will avoid the responsibility of debts. Hence, voting powers, rights, and responsibilities will be laid on the acquired person or the entity.
Voluntary wind up: Voluntary wind up can be initiated either by way of one-of-a-kind resolution or a resolution taken during a general board meeting. By violating any of the t&c of the MOA, the winding up can be executed. At the same manner, due to inadequate funds or lack of capability to clear the outstanding debts, a company can be winded up on a voluntary basis.
Compulsory wind up: Any co. which is registered in India under the Companies Act 2013, which did an unlawful/Fraudulent act, or even if they backed any action in some falsified or illegal activities then such business would be wound up forcibly by the Tribunal of ROC.
Treatment For Voluntary Wind Up
- According to the companies act, 2013, the resolution of the board meeting is essential to start the winding up process.
- In a particular resolution, a majority of 3/4th of the company shareholders should register their vote on the side of winding up the company.
- Likewise, the business’s creditors should favor the resolution made for winding up, without problems.
- The “Declaration of Solvency” should enclose outstanding debts along with the auditor report, regarding total assets of the company and it should be forwarded to the ROC (Registrar of Companies).
- Now the official liquidator after roc approval will be appointed to complete the winding up process from the date of passing the board resolution.
- After the resolution has been passed, the liquidator should open a bank current account within a period of one month or as prescribed by law.
- In any scheduled bank, the liquidator should open a bank account in the name with, the prefix “the name of the company” followed by “voluntary liquidation”.
- The liquidator will collect all the reliable documents and prepare a report consisting of final accounts and present this in a general meeting for approval. Here, the majority of members should pass this resolution.
- After compiling all the necessary documents, the final report will be sent to the bench for reference.
- After assessing the credibility of the report, the bench will pass a decree for the dissolution of the company.
- A copy of that ruling will be accelerated to ROC by the liquidator within 30 days of the instruction dated.
- Now the ROC will mandate the winding up of the company, and remove the name of that company from the registry.
- Simultaneously, the ROC will publish this order in the official publication of India.
Treatment For Compulsory Wind Up
- The plea to the bench should be filed along with the statement of affairs, of the disputed company.
- After examining the credibility of the plea filed, the bench may accept or reject the aforesaid plea.
- Here, the liquidator will be chosen by the bench itself.
- The liquidator will execute all assets of the company, examine the book of accounts, and compile into a draft/report.
- These reports are to be forwarded to the bench after the winding up committee had accepted the same.
Following are the documents required:
- PAN card of the company
- Certificate of closure bank account of the company.
- An indemnity bond, which should be notarized by the directors.
- Latest statement of company accounts.
- Statement of accounts related to all assets and liabilities of the company, audited by Chartered Accountant (CA).
- Proof of approval of the resolution by 3/4th of board members.
- Application for name removal of the company.
There could be any reason for winding up a private company. It however is a long process. But we are here to help in the best possible way we can.
ASA is leading firm in providing services like these. We have a strong and experienced team of professionals who are ready to work for you 24×7.
We assure to complete your process with ease and convenience. Our representatives are in this industry for a very long time and know all about the legal formalities. While we at ASA take up the load of legal formalities you on the other hand can focus on you business without much stress.