How to close a Registered Company? Step By Step Procedure!

Starting a business brings excitement and challenges together. However, if the challenges are not managed effectively, a company may become inactive, non-operational, or revenue-less, resulting in the need to close it. Company Closure in India requires a formal legal process that every company must follow. It is the responsibility of company’ owner to follow this legal procedure to ensure a smooth closing but they often get confused between terms like Strike Off, Winding Up, and Liquidation. This blog will help you understand these terms clearly and guide you through the step-by-step process to close a company in India.

Primary Methods to Close a Company in India 

In order to close a company, two primary ways are followed in India. It includes Winding up a company or strike off a company. Both company closure ways are unique and have significant differences. Following is the basic overview on these structures: 

Documents Required to close a company

In order to close a company in India, there are two different methods including strike off and winding up. Depending on the methods, the checklist for documents required varies. Check both the checklist carefully and prepare accordingly as per your company closure needs: 

Documents Required for Strike Off: 

• Copy of Board Resolution including the approval for Company’s Strike Off
• Copy of Special Resolution passed by the members and shareholders of the company to strike off the company. 
• Indemnity Bond in STK-3, by all the company’s directors
• Affidavit in STK-4, signed individually by each director 
• Bank Account closure letter 
• STK-8, account statement not older than 30 days from the application date
• MOA, AOA, PAN of the company

Documents Required for Winding up:

• Form-26, containing special resolution as a proof of company’s windup decision 
• Form 107, declaration of solvency for presenting company’s ability to pay its debt 
• Liquidator’s Consent to proceed with winding up process
• Notice of winding up of company in the official gazette
• Notice about appointment of liquidator in the official gazette
• Company’s winding up plan outline report by liquidator 
• Documentation of the final report & accounts
• MOA, AOA & PAN of the company

Steps to close a Company 

To close a company in India either strike off or winding up, both need a formal and legal procedure to be followed. However, the procedure to close a company varies for both the methods. Let’s understand steps to close a company from each way in detail: 

Steps to Close a Company by Strike Off: 

1. Board Resolution: First, the company's directors need to pass a board resolution to approve the company's strike off decision.
2. Clear Debts & Liabilities: Next, the company needs to clear its debt and all the liabilities to acknowledge they don’t have any outstanding liabilities and are financially free from all the obligations.
3. Special Resolution: After clearing all the debts and liabilities, it is important to pass a special resolution in the Extraordinary General Meeting (EGM). At 75% shareholder must agree to pass this resolution and initiate the strike off procedure. 
4. MGT-14: Companies need to file MGT-14 within 30 days of passing the resolution along with a copy of the special resolution passed in the Extraordinary General Meeting. 
5. Filing of STK-2: Next, companies need to file STK-2 which is the e-form used to strike off the company’s name. This form includes multiple details about the entity which is mandatory to submit. 
6. STK-5A: Once the application proceeds, ROC will publish a notice in the official gazette and in two different newspapers. It is important to publish in two newspapers by ROC, so that the public can raise their objections (if any). They are offered with a time period of 30 days to raise objections, after this time period the procedure moves forward. 
7. STK-7 (Final Notice): In case if there is no objection from the public, ROC will issue the final notice (if satisfied) in STK-7. This notice will be published in the official gazette and on the MCA website and at last the company will come to an end as of the Notice Publication date. 

Steps to Close a Company by Winding Up: 

1. Passing a Special Resolution: The winding up process starts by passing a special resolution including the proposal to close the company in a general meeting. This proposal must be accepted by three-fourth members to proceed with further steps.
2. Solvency Declaration: Next, the director assesses the company’s financial health and ability to pay its debts and outstanding liabilities. If the company is solvent and can pay its debts then the director must file the solvency declaration under Form 107 as per Rule 269 with the Registrar of Companies (RoC).  
3. Liquidator Appointment: Once the declaration is made, members will appoint a liquidator who will manage and settle all the assets & debts and will look over the further winding up procedure. 
4. Notice of Liquidator Appointment: Once the liquidator is appointed it is mandatory to announce in the official gazette and to the registrar. This process must be followed within 14 days of liquidator appointment. 
5. Settlement of Debts: Next, the liquidator takes control over the winding up procedure including managing & recording the assets to pay off the debts. In case if the liquidator finds the company is not able to pay its debts then in that case the liquidator arranges a creditors meeting where further decisions will be taken.
6. Annual General Meeting (if needed): In case if the winding up procedure takes more than a year to settle things then it is the responsibility of the liquidator to arrange an Annual General Meeting of shareholders and seek courts approval for extending the winding up procedure. 
7. Final Report and Meeting: After full settlement of assets and liabilities, the liquidator needs to call a final meeting where he/she can present the final accounts, highlighting asset distribution and liquidation procedure. 
8. Dissolution of Company: After presenting the final accounts Company need to apply to RoC for dissolution. Once the RoC approves the application, the company will be removed from the list of RoC and considered dissolved.  

Still having confusion between both the procedure, understand complete difference between winding up and strike off a company!

Conclusion 

Closing a company is a process of ending a company's existence. In India, companies are considered closed after following a legal procedure, it can be winding up or strike off method. Both the procedures have their significant role, strike off any company simply means removing its name from the list of RoC while winding up a company means clearing all assets and liabilities of a company to close it. For strike off, the company needs to pass board resolution, clearing debts and liabilities, passing special resolution, filing MGT-14, STK-2, STK-5A & STK-7 respectively. However for Winding up, the company needs to pass special resolutions, declare solvency, appoint liquidators, settle debts, arrange final reports and meetings, etc.