CLOSURE OF PRIVATE LIMITED COMPANY
CLOSURE OF PRIVATE LIMITED COMPANY
During last more than one decade now, after Government of India’s initiative for free flow of FDI in India, a number of foreign national(s)/foreign entities established Private Limited Companies in India after having Indian National as nominee director without participation in equity share capital of the company or with a meager some of capital contribution. Unfortunately, several such companies after incorporation could not start any business activity due to various reasons which resulted in corporate collapses. The management of such companies are under belief that since the company either has not started any business activities in India or it has incurred huge losses in the year of inception itself, it need not to make any compliance. In such situation the promoter even without closing the company, they discontinued the business and leave the company in India as if an orphan child at the mercy of so-callednominee director, who invariably is representative of the professional who was engaged in establishment of the company.
A company, being an artificial juridical person, does not die a natural death. It is created by law, carries on its affairs according to law throughout its life and ultimately is effaced by law.
The major reasons behind the corporate collapse are as under:-
If the promoters wants to discontinue their business and abandon the company as it is, they can do so at their cost and risk. Such assumptions will not solve the problem but it will become problem inventor in due course of time. So it is always advisable to end up your company in a legal manner. We at PKP can assist such promoters, to smoothly close their company in compliance with the provision as stated in law.
A company established in India whether by the Indian Nationals or foreign nationals /foreign entities can be closed through following methods:-
STRIKING OFF DEFUNCT COMPANIES
As per the Companies Act, 2013, a Defunct Company is a company which has gained the status of a Dormant Company. The government provides certain relief to such defunct or dormant company because there are no financial transactions undertaken by dormant companies. The salient features of such companies are as under:-
The Companies Act, 2013 laid down the procedure for winding up a Defunct Company under section 248 of the Companies Act, 2013. A Defunct or Dormant Company can be wind up with a fast-track procedure which requires submission of the STK-2 form.
As per provision of Section 248(2), a company may apply for removal of name from register of company to the Registrar of Companies (RoC) subject to the following conditions:
The Registrar after verifying the contents of the application so filed in this regard, if satisfied will strike off the name of the company from the Register of the company being maintained by him at his office.
CONCEPT OF WINDING UP:
Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. Winding up is a legal process.
Effects of winding up:
The procedures for Winding up of companies are provided under the Companies Act, 2013 and Insolvency and Bankruptcy Code of India 2016.The Insolvency and Bankruptcy Code, 2016 is an act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
VOLUNTARY WINDING UP:
A Company’s shareholders may trigger a voluntary winding up, usually by passage of resolution. This action can be taken in both cases of either if company is insolvent or if the company is solvent.
Motive in case of Insolvent, may be to avoid bankruptcy or in some cases, personal liabilities for the company’s debt. In case of Solvent, the shareholders may feel their objectives have been met and it’s time to cease operations and distribute company assets.
Winding up a company voluntarily require long procedural compliance to be followed under applicable Indian Rules & Regulations. Eye bird view of the procedure is as under:-
COMPULSORY WINDING UP
Winding up a company by an order of National Company Law Tribunal (NCLT) (Tribunal) is known as compulsory winding up.
The following persons/stake holders can file petition for compulsory winding up before the Tribunal u/s 272 of the Companies Act, 2013.
The method to be followed for closure of the Company by the promoters may vary from facts and circumstances of such companies. It is advisable to approach specialized professional firm having good standing in the profession and rich knowledge of the subject.