How to Close a Company in India?

Starting and running a company takes a lot of hard work and that work imprints your blood and sweat onto the company. It is therefore, so much harder to close the company. However, there are times; you just have to do it. Through this blog, you are going to know all there is to know about closing your company.

Starting a company requires a lot of legal hurdles. There is documentation, then there is application filing, then there is auditing and then there is business registration. More difficult then starting a company is maintaining it. Even more difficult is closing the company. When shutting down your company’s doors completely remains the only option, you are going to be under a lot of scrutiny. Through this article, you shall know about the processes to close a company in India.

The two types of company closing procedures

There are two ways to close a company. However, all of them are mutually exclusive. There is a mandatory company closing, where you HAVE to shut down your company. Then there is voluntary closing, where you CHOOSE to close your company.

Mandatory Company Closing

Mandatory Closing of the company: Mandatory Company Strike-off is something that you might now want, but you are ordered to do. Mandatory strike-off for company happens on the behest of petitions from any of the following entities:

1. The central government
2. The group of creditors
3. A group of consumers
4. The members of the company
5. The ROC (Registrar of Companies)

The process of mandatory company strike-off involves the following steps:

1. Filing the petition to the tribunal along with the statement of affairs of the company: The statements have to be audited by a practicing chartered accountant before they are submitted to the tribunal.
2. The petition has to be published: Once the petition is submitted and accepted by the tribunal, it has to be published for 14 days. It should be done on the national and the regional newspaper. The form for publishing the petition is Form 6
3. The Proceedings shall begin: The proceedings shall begin and if everything is in order, the tribunal passes the order to close the company. When that happens, the company ought to be shut down.

Voluntary Company Closing

Voluntary Company Strike-Off is something that you can choose to do. However, unlike mandatory company closure, when you choose to shut down your company, the steps are more. The procedure to voluntary company shut down is the following:

1. Pass a board resolution: First, you need to pass a board resolution through where you are going to specify that you are voluntarily closing the company. This resolution has to be passed by majority of the members of the board.
2. Pass a special resolution: In addition to the previous resolution, you need to pass a special resolution to wind up the company. This resolution has to be agreed upon by 3/4th of the board members of the company.
3. Get the consent of the trade creditors: Get your trade creditors to say yes to your decision of closing your company.
4. Declaring Solvency: Now, the company has to declare solvency. This declaration has to be sent to and accepted by the trade creditors as well.
5. Appointment of a liquidator: A liquidator is appointed who will then make a report of all the assets and liabilities of the company.
6. Filing the application for company strike-off: The information in the above points will be filled in the prescribed form and then will be submitted to the tribunal.

Documents required to close the company

Striking off a company from the MCA registry involves filing the application and some related information along with the following documents:

1. Board resolution.
2. Special resolution.
3. Affidavit from the directors.
4. Indemnity Bonds.
5. Statement of Affairs of the company.
6. Other documents as requested by the tribunal.

Why closing a company is so difficult?

The reason as to why company strike off is so difficult is because the following conditions are to be met:

1. There should be no assets or liabilities of the company remaining.
2. There should be no regulatory requirements remaining of the company.

Therefore, there are many pre-requisites that should be handled before you can even think about shutting down your company in India.

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Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.