Difference Between Winding up and Strike off a Company

The legal process of shutting down a company or business is known as. It includes closing companies operation and removing its name from the Registrar of companies. This process can be completed in two major ways:Winding up a CompanyandCompany Strike off.Winding up a company is considered a more formal and complex process while Strike off a company includes a less complicated route to close a company. Usually, people get confused between both these processes. In this blog, we will discuss the major differences between winding up and striking off a company in detail.

What is Winding up a company?

Winding up a company is a formal process of ending a company's existence. The process of winding up a company involves selling all assets of the company in order to settle its liability and distributing remaining funds among all the stakeholder. Winding up a company can be done by voluntarily or on court order. Let’s understand winding up of a company in detail:

Voluntary Winding Up:When a company itself decides to close its company known as voluntary winding up. This process includes passing a resolution to wind up the company. The reason for voluntary winding up a company can be insolvency, personal or professional situation or inability to continue the operations. This category is divided into two categories: Voluntary windup by members or voluntary windup by creditors.

Member’s Voluntary Winding Up:In case when the company is solvent and able to pay its debts but members want to wind up their company due to any personal or professional reason. To wind up a company by its members, a special resolution needs to be passed by the shareholders and appointment & the remuneration of the liquidator have to be fixed.

Creditor’s Voluntary Winding Up:In case when the company is insolvent and unable to pay its debts, this method is used to wind up the company. To wind up a company by its creditors, a meeting is organized with the company's creditors where they appoint a liquidator to oversee the winding up process.

Mandatory (Tribunal) Winding Up:When a company is unable to meet its financial obligations, include objectives other than public interest, or faces failure to meet legal compliances, in this case court passes an order and the company needs to close its operations. Usually this wind up is initiated by creditors, shareholders or regulatory authorities. To close the company, the court appoints an official liquidator to handle the process.

What is Strike off a company?

Strike off a company is a process of removing a company's name from the list of registrar of companies. This process results in losing the company's legal existence and thus being unable to run its operations legally within its name. A Company can be struck off in case of absence of business activities or operations.

Key Differences Between Winding up and Strike off a Company

Winding up and strike off are two processes used to shut down a company in India. When the primary goal of both structures is to close a company, there are still few significant differences between both structures. It is important for stakeholders & business owners to understand the differences between them to make an informed decision about the company's closure. Following is the detailed table on key differences between winding up and strike off a company:

Conclusion

Winding up and striking off are both methods used for a company’s closure but have their significant differences. Where the windup process is adopted in case of insolvency, strike-off is completed in case of no business activity. The windup process is a little complex, as it includes settling debts, whereas strike-off is not too complex, as it just includes removal of the company's name from the list of the Registrar of Companies. Winding up a company takes longer to close the company as it includes the distribution of assets as well, while a strike-off is a quick process as it does not include any asset distribution or settlement. Company windup is usually initiated by shareholders, creditors, or a tribunal, and it can’t restore its presence later. However, a company strike-off is initiated by the ROC & company itself and is eligible to restore its presence by making an application to the NCLT within a specified period of time. Both processes have their unique feature and identity; it depends on the company & its situation for the selection of procedure.

Frequently Asked Questions (FAQs)

What is the primary difference between winding up & striking off a company?

The primary difference between winding up & striking off a company is the winding-up process is applicable when the company is working actively with assets and liabilities and needs formal closure, while the strike-off process is used for inactive companies with no assets and liabilities.

Which process is more complex: winding up a company or striking it off?

The winding-up process takes more time and effort as compared to striking off a company, as it includes settlement of assets and liabilities and other legal formalities.

Who is responsible for the company closure in India?

In case of winding up a company, usually shareholders, creditors, liquidators, and NCLT (National Company Law Tribunal) are involved, while in case of striking off a company, the Registrar of Companies (ROC) is responsible for the company closure.

Can a company be restored after its closure?

It usually depends on the company closure type; in the case of winding up a company, it is not possible to restore it, while in the case of a strike-off, the company can be restored by making an application to the NCLT within a certain period of time.

Is company closure the same as company liquidation?

Company closure and liquidation are related but not the same. Closure is the process of dissolving a business, while liquidation involves selling off assets to pay off debts before closure.