Winding Up of a Private Limited Company

How to Wind Up a Private Limited Company?

As we know, a Private Limited Company is a business entity formed by a small group of individuals which gets registered with an objective and are owned by a group of shareholders.

However, running a new business or company has its own challenges.  At times, when a business does not work out properly, it may have to be shut down. There can be various causes for Winding up a Company.

It is important to know the proper procedure on how to close a Private Limited Company. The steps are given below in details

• Selling the Company 
• Compulsory Winding Up
• Voluntary Winding Up
• Defunct Company Winding Up

Selling the Company

Selling the company is the first step and it is kind of voluntary winding up. The shares of the company have to be sold at first. The majority of shareholding is transferred to another individual or entity and in turn, the previous stakeholders are discharged of their stocks and liabilities.

Procedure

• The decision of selling the company has to be taken by the majority of the shareholders.
• The shares have to be sold and charges have to be transferred to another entity.
• The Documents like Resignation letter of the present Director, MOA/AOA of the company, original copy of the balance sheet and all other official documents have to be surrendered.
• New Directors have to be appointed.

Compulsory Winding Up

Any company registered under the Companies Act, which has practised some unfair or fraudulent means or if they have contributed in some malpractices or unlawful activities; then such private limited company has to face compulsory winding up as per the regulation of the Tribunal.

Procedure

1. The petition will be filed in the first place by the following:

• The Company or
• The Trade Creditors of the Company or
• Any contributory or Contributors to the company or
• Any or all of the above mentioned three categories or
• The Central or State Government or
• By the Registrar of the Companies

2. The Statement of Affairs of the Company should be added to the Petition.

All the documents attached to the petition should be audited by a Chartered Accountant and the statement of affairs should be attached and verified by an affidavit.

3. An Advertisement of the Petition for 14 Days

The petition should be published and advertised in a daily journal at least for 14 days in the regional language of the concerned area and in English.

4. Proceedings under the Tribunal

The Tribunal will run the proceedings of the petition and hear the petition on the date fixed for hearing, accept the objections and replies from the end of the petitioner. A provisional liquidator may be appointed by the Tribunal.

The order of winding up shall prescribe:

• The updated audited books of accounts have to be submitted.

• The date, time and the place for the Company Liquidation have to be provided.
• The assets and the documents have to be surrendered to the Company Liquidator.

After the winding-up order is issued, the Company Liquidator shall take into custody all properties, actionable claims and the other documents of the company. A report to the Tribunal has to be submitted within 60 days of the date of the winding-up order. Then, the Company Liquidator shall apply to the Tribunal for the dissolution of the company.

After the clearance order has been passed by the tribunal, the registrar will issue a notice to the Official Gazette stating that the company is dissolved.

Voluntary Winding Up

Shutting down a Pvt Ltd Company voluntarily involves lengthy procedure. Certain mandatory requirements have to be executed to close down a company voluntarily. A company can voluntarily wind up in the following situations:

• The company passes a resolution in its meeting after the expiry of the duration of its formation, or
• Upon the occurrence of any event that demands the dissolution of the company, or
•  When the company passes a special resolution with approval of at least 3/4th of the shareholders for a voluntary shut down of the company.

Procedure

• After passing the resolution in the General Meeting, the Directors must agree to the proposal.
• The Trade Creditors must give their approval to the winding up of the company.
• A Declaration of Solvency has to be prepared and produced by the company.
• The Company Liquidator has to take up the responsibility of the winding up proceedings and send the accounts report to the ROC.
• The Company liquidator must send an application to the Tribunal for dissolution of the company.

After the above proceedings are completed, all the documents must be filed in a prescribed format before the winding up of the company.

Defunct Company Winding Up

As per the Companies Act, 2013, a Defunct Company is the one which has attained the state of a Dormant Company. The Government allows dissolution for such defunct or dormant company because there are no financial transactions undertaken by such dormant companies.

A defunct company refers to a company which has:

• No asset and no liability, and
• Which has not carried out any business activity after it was initiated
• Has not been carrying on any business for the last one year before making an application under Fast Track Exit Scheme.

Procedure

• Winding up a Defunct Company involves a fast-track procedure.
• The submission of STK-2 form is required for winding up a Defunct Company.
• The STK-2 form has to be signed by the Director of the company before submission.

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