Company Closure

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Company Closure

A company gets incorporated once the Registrar of Companies issues a certificate of Incorporation. While issuing certificate of incorporation, the ROC certifies that the name contained in certificate has come into existence on the date mentioned in the certificate. There is a Register of Companies maintained by the ROC, in which the name of the company will be entered. The company name, once entered in the Register cannot be removed unless it is dissolved by the process of law. Law can dissolve a company either as a result of its winding up or its amalgamation with another company.

But, if the company is defunct; i. e., non-operational or non-functioning, there is an alternative to dissolution that is called “Striking off”. The ROC can strike the company name off of the Register of Companies. This option is beneficial for companies that are registered with ROC but non-operational due to various reasons. 

Removal of name from Register of Companies could be done in two ways:

1. By Registrar of Companies’ suo motu basis

2. By the Company on its own or voluntary

The Registrar of Companies can suo motu strike off the name of the company from the Register, in the following cases:

  • A company has failed to commence its business within one year of its incorporation.
  • Company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company. 
  • The subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within 180 days of its incorporation. 
  • The company is not carrying on any business or operations, as revealed after the physical verification carried out.

Following are the category of companies that cannot be removed under these provisions:

1. Listed Companies.

2. Companies registered under section 8.

3. Companies having charges which are pending for satisfaction.

4. Companies whose application for Compounding is pending.

5. Companies against which any prosecution for an offence is pending in any court.

6. Companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws.

7. Companies where inspection or investigation is ordered and being carried out or actions or such order are yet to be taken up or were complete but prosecutions arising out of such inspection or investigation are pending in the court.

8. Companies which have accepted public deposits which are either outstanding or the company is in default in repayment of the same.

9. Companies where notices under section 234 of CA 1956 or 206 or 207 of the Act, have been issued by the Registrar or Inspector and reply is pending or report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the court.

Condition for Striking Off Companies

The company can file an application for removal of name of the company from the Register of Companies, through its Board of Directors, on the following grounds: 

(a) Where a company has failed to commence its business within one year of its incorporation

(b) Where a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455 of the Companies Act, 2013.

The company must satisfy any one of the above conditions to be eligible for the strike off.  The Board of Directors of the company must take all the steps in order to end all its liabilities. Shareholders’ approval is also required to be taken for filing an application to the Registrar of Companies for the removal of the name of the company from the Register of Companies.

Procedure for

Striking Off the Name of the Company

The Company will hold Board Meeting and decide the matter relating to striking off the name of the Company and pass the resolution to authorize any director of the Company to apply to Registrar of Companies and fix day, date, time and venue of General Meeting. After passing of Board resolution, the company will pay all liabilities, if any. Every director of the company should sign and execute indemnity bond in Form STK 3 and Affidavit in Form STK 4, which should be duly notarized. Company should prepare the statement of accounts prepared showing the assets and liabilities of the company made up to a day, not more than thirty days before the date of application. Statement of Account should be signed by chartered accountant and Directors of the company.

The General meeting is convened to pass the special resolution. Resolution for the purpose of striking off of the company name from the register of the ROC should be passed by the shareholders as a special resolution. r consent of seventy-five percent members in terms of paid-up share capital should be obtained or NOC from the 70% of the shareholders in the term of paid up share capital.

Within thirty days from the date of the passing of the special resolution in the General Meeting company should file MGT-14. An application for removal of name of the company under sub-section (2) of section 248 shall be made in Form STK-2 along with the fee.

Documents Required

For E-Form STK-2

1. NOC from the authority concerned, if required (RBI, IRDA, Housing Finance, SEBI etc.)

2. Indemnity Bond from Every Director in Form STK-3

3. Statement of Accounts in form STK-8

4. Affidavit from every Director in Form STK-4

5. Certified True Copy of Special Resolution/ consent from shareholders

Effect of Strike off of a Company

Upon striking off the company name from the Register of Companies, it stops being a company from the date mentioned in the notice. The Certificate of Incorporation issued to the company will be considered to have been cancelled from the date except for the purpose of realizing the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.

Penalties

1. If a company files an application under sub-section (2) of section 248 in violation of sub-section (1), it shall be punishable with fine, which may extend to one lakh rupees.

2. If it becomes evident that the application for striking off has been made with the object of evading the liabilities of the company or with the intention to deceive the creditors or to defraud any other persons, the persons in charge of the management of the company shall, notwithstanding that the company has been notified as dissolved—

(a) be jointly and severally liable to any person or persons who had incurred loss or damage as a result of the company being notified as dissolved; and

(b) be punishable for fraud in the manner as provided in section 447.

Further, Registrar may also recommend prosecution of the persons responsible for the filing of an application under sub-section (2) of section 248.