A private limited company is considered an artificial judicial person. Thus, a private limited company requires various compliances such as an appointment of an auditor, regular filing of income tax returns, filing the annual return etc. A company that fails to maintain such compliance is fined and in some cases it may lead to directors being disqualified from incorporating another company. Thus, if a private limited company become inactive and there are no transactions in the company, then it is considered best to just wind up such a company.
The voluntary winding up of a company can be initiated anytime by the shareholders of the company. In such a case if there are any secured or unsecured creditors or employees on-roll, their outstanding dues have to be settled. Once all these dues are settled, the bank accounts of the said company have to be closed. The company must regularise any overdue compliance like income tax returns/ annual tax returns filing and should surrender their GST registration. Once, all the activities cease to a stop, all the registrations have been surrendered, the winding up application petition for a company can be filed with the Ministry of Corporate Affairs.
WINDING UP OF A COMPANY BY TRIBUNAL
The winding up of a company may happen due to a number of factors such as closure of business/loss/bankruptcy/passing away of promoters, etc. The process for winding up of a company can be initiated voluntarily by the shareholders of the company/the creditors of the company/or by a Tribunal.
As per Companies Act 2013, a company can be wound up by a Tribunal as per the following points:
- The said company cannot pay its debts.
- The company has by the passing of a special resolution decided that the company should be wound up by the Tribunal.
- The said company has acted against the sovereignty and integrity of India, the security of the state, the friendly equation with foreign states. It has acted against public order in an indecent or immoral manner.
- The Tribunal has decided to wind up the company under Chapter XIX.
- If the said company has not filed financial statements or annual returns for the last five consecutive financial years.
- If the Tribunal is of the judgments it is just and equitable to wind up the company
- If the affairs of the said company have been conducted in a fraudulent manner/or the company’s formation was for fraudulent and unlawful purposes/the individuals involved in the formation or management of the company’s conduct have been found guilty of fraud/misfeasance/misconduct. Then it is only proper that such a company be wound up.
VOLUNTARY WINDING UP OF A COMPANY
- If the said company passes a special resolution to wind up the Company.
- The said company in a general meeting passes a resolution that requires the company to be wound up voluntarily as a result of the expiry of the fixed period of its duration decided by its Articles of Association or the occurrence of an event in respect of which the Articles of Association mention that the company must be dissolved.
PROCESS FOR VOLUNTARY WINDING UP OF A COMPANY
The following are the steps for initiating a voluntary winding up of a Company:
- The company mustconvene a board meeting with two Director or by a majority of directors. A resolution must be passed with a declaration by the directors that they have made an enquiry into the affairs of the Company and are of the opinion that the company has no debts/or that it will be able to pay its debts in full from the proceeds of the assets sold during the voluntary winding up of the company. The directors must fix up a date/place/time/agenda for a general Meeting of the company after five weeks of this board meeting.
- Notices have to issued in writing calling for the general meeting of the company which propose these resolutions along with a suitable explanatory statement
- An ordinary resolution has to passed in the general meeting for winding up of the company by ordinary majority or special resolution by 3/4 majority. The winding up of the company will commence from the date of passing of this ordinary resolution
- On the same day or the next day of passing of the resolution of winding up of the Company, the company has to call for a meeting of the creditors. If two thirds of the creditors of the company are in agreement, that it is in the interest of all parties to wind up the company, then the company can be wound up voluntarily. If the company cannot meet all its liabilities on winding up, then the company has to be wound up by a Tribunal
- Within 10 days of the passing of this resolution for winding up of company, a notice has to be filed with the registrar for appointment of liquidator
- Within 14 days of passing of resolution for winding up of company, a notice has to be given in the official gazette. An advertisement has to be placed in a local newspaper in the city/town/district where the registered office is present
- Within 30 days of the general meeting for winding up of company, certified copies of the ordinary or special resolution have to be filed
- The activities of the company has to be wound up and a liquidators account of the winding up of the company has to be prepared. This account has to audited
- The final general meeting of the company has to be called
- A special resolution has to be passed for the disposal of the books and papers of the company, after the affairs of the company are completely wound up and it is ready to be dissolved.
- Within two weeks of the final general meeting of the company, a copy of the accounts has to be filed. An application has to be filed to the Tribunal for passing an order for the dissolution of the company.
- If the Tribunal is satisfied, it will pass an order dissolving the company within 60 days of receiving the application.
- The company liquidator will file a copy of the order with the Registrar.
- The Registrar on receiving the copy of the order passed by the Tribunal will publish a notice in the official gazette that the said company has been dissolved.
REASONS TO WIND UP OF A COMPANY
1)WINDING UP TO AVOID COMPLIANCE
A company is a legal entity and treated as a juristic person under the Companies Act. Thus, a company has to maintain regular compliance throughout the duration of its existence. The winding up process is done by a company that is not active and wants to avoid compliance responsibilities.
2) WINDING UP PROCESS IS FAST
A company can also be shut by filing an application with the MCA in about 3 to 6 months. The entire process can be done online.
3) WINDING UP TO AVOID FINES
A company which doesn’t file its compliance on time incurs penalties including disqualification of the directors from starting another company. Thud, it is advisable to officially wind up a company that is inactive and avoid potential fines or liabilities that may occur in the future.
4) LOW COST OF WINDING UP
The cost to maintain compliance for a dormant company is more than the cost of winding up a company.
5) WINDING UP A COMPANY IS EASY
A company with minimum or zero activities that has maintained proper compliance during its life cycle can be closed with ease. If any compliance is overdue, the compliance have to be regularised and all the registrations surrendered before closing the company.
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