The closure of a company is Also known as Liquidation or winding up. It is a process through which the business of the company or you can say the entire existence of the company comes to an end.
Closure of the company is a Secondary step for Winding up of a company, it is preceded by the Liquidation process in which the company voluntarily appoints an official liquidator. The liquidation officer so appointed sells off the assets of the company and pays off the debts.
Table of Content
- What Does It Mean By Company Closure?
- Company Closure under the Companies Act 2013
- Benefits of company closure
- Disadvantages of company closure
- Conclusion
- FAQs
What Does It Mean By Company Closure?
Company Closure is a process in which the entire existence of a company comes to an end. It is a process preceded by liquidation. Closure can be –
- Compulsory winding up
- Voluntarily Winding up
In Voluntary winding up, the board of the company appoints an official liquidator who during the periods of the liquidation process manages the administration of the company. The official receiver makes a list of priority of debts and proceeds to sell off the assets in the best way possible to pay off all the liabilities of the company and to pay left out money to shareholders of the company. While in compulsory closure, the Registrar of the company proceeds to serve notice on the general body of the company of his intention to shut down the company on the grounds he deems fit.
Company Closure under the Companies Act 2013
Company closure under the Companies act, 2013 means when your company which was incorporated under the said act and was registered in the register of companies gets struck off from that list. The company, its name, certificates, registration everything comes to an end, and the promoter is supposed to start a fresh company.
Closure under the companies acts,2013 is done in either of the following ways:
- Suo-moto strike off
- Compulsory Strike off
Suo-moto Strike off
In Suo-Moto strike the company may by itself file an application to the registrar to get it Wind up. Suo- moto striking off by the company is explained under section 248(2) of the companies act,2013
The procedure for Suo-moto striking off is as followed:
- Convene a board meeting and pass a Board resolution to decide the date, time, and venue of the extraordinary general meeting.
- After passing the Board resolution, the Company shall pay off debts or liabilities, if any.
- Every director of the company should sign and execute an indemnity bond duly notarised by every director in Form STK 3 and Affidavit in Form STK 4.
- The company should get the statement of accounts in Form STK-8 containing the assets and liabilities of the company made up to a day, not more than thirty days before the date of application. Such a statement should be certified by a Chartered Accountant.
- On EGM, pass a Special Resolution for the purpose of removing the name of the company from the register of companies.
- File form mgt-14 to ROC within 30 days of passing a resolution in EGM.
- Approval of concerned authorities is required in the case of a company regulated by any other authority.
- The company shall file STk-2 which should be duly certified by a company secretary in whole-time practice or chartered accountant or chartered accountant in whole-time practice along with the Govt. fee of ₹10,000/-.
Compulsory Strike-Off
In compulsory Strike-off the registrar of companies suo-moto proceeds to strike-off the name of the company from the register of companies by serving a notice on the general body of the company. A compulsory strike-off is given under Section 248(1) of the companies act,2013.
On the following grounds, the registrar may proceed to struck-off the name of the company.
ROC can direct for strike off a company if it has reasonable cause to believe that–
i) a company has failed to commence its business within one year of its incorporation or
ii) 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 or
iii) 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 form INC 20A is not filed within 180 days.
iv) the company is not carrying on any business or operations, as revealed after the physical verification after the registered office of the company is found by the Registrar of Companies.
Benefits of company closure
It is important to note that company closure, also known as business closure, can have both positive and negative consequences. While the decision to close a company is typically a difficult one, there are some potential benefits to consider, including-
- Cost savings: Closing a company can help reduce ongoing expenses such as rent, salaries, and other overhead costs. This can help to free up capital that can be used to pay off debts or invest in other ventures.
- Improved work-life balance: Running a business can be a stressful and time-consuming endeavor. Closing the company can help to reduce the amount of time and energy needed to manage the business, allowing for a better work-life balance for the owner(s).
- Opportunity to pursue other ventures: Closing a company can open up new opportunities for the owner(s) to pursue other interests or ventures. This can lead to new experiences and personal growth.
- Avoiding further losses: If a company is struggling financially, closing the business may help to avoid further losses and debt. This can help to protect the owner(s) from personal liability and financial ruin.
Disadvantages of Company Closure
In addition to the potential benefits, there are also several disadvantages associated with company closure. Some of these include
- Loss of jobs: Closing a company often means that employees will lose their jobs. This can have a significant impact on their livelihoods and can also result in a loss of skilled workers for the industry.
- Financial losses: Closing a company can result in significant financial losses for the owner(s). This can include costs associated with severance pay for employees, paying off debts and liabilities, and potential legal fees.
- Damage to reputation: Closing a company can have a negative impact on the owner(s) reputation within the industry and with customers. This can make it more difficult to secure funding or start a new business in the future.
- Legal obligations: There may be legal obligations associated with closing a company, such as notifying government agencies, fulfilling tax obligations, and providing proper notice to employees. Failure to meet these obligations can result in legal penalties and additional financial losses.
- Emotional stress: Closing a company can be emotionally stressful for the owner(s), as it may represent a failure or loss of a long-term investment. This can lead to feelings of anxiety, depression, and a sense of loss.
Conclusion
In conclusion, the closure of a company is a significant decision that requires careful consideration and planning. The Companies Act 2013 provides various modes for the closure of a company, including voluntary winding up, fast-track exit, and striking off. Each method has its own requirements and procedures that need to be followed. It is essential to consult a legal expert and ensure that all the necessary compliances are met before initiating the closure process. Failure to comply with the legal requirements can result in legal liabilities and penalties for the company’s directors and shareholders. Therefore, it is crucial to take the closure decision only after a thorough evaluation of the company’s financial and operational position and after consulting with all the stakeholders involved.
Frequently asked questions [FAQ]
Q1. What is the procedure for Suo-moto striking off a company under the Companies Act, 2013?
Ans. The procedure for Suo-moto striking off a company under the Companies Act, 2013 includes convening a board meeting and passing a Board resolution to decide the date, time, and venue of the extraordinary general meeting, paying off debts or liabilities, if any, executing an indemnity bond and affidavit, getting a statement of accounts, passing a Special Resolution for the purpose of removing the name of the company from the register of companies, filing form mgt-14 to ROC within 30 days of passing a resolution in EGM, and filing STk-2 which should be duly certified by a company secretary in whole-time practice or chartered accountant or chartered accountant in whole-time practice along with the Govt. fee of ₹10,000/-.
Q2. What is the compulsory Strike-Off of a company?
Ans. Compulsory Strike-Off of a company is a process where the Registrar of Companies suo-moto proceeds to strike off the name of the company from the register of companies by serving a notice on the general body of the company. A compulsory strike-off is given under Section 248(1) of the Companies Act, 2013.
Q3. What are the benefits of company closure?
Ans. Some of the potential benefits of company closure include cost savings, improved work-life balance, and the opportunity to pursue other ventures. However, it is important to note that company closure can also have negative consequences such as loss of investment, job loss, and damage to the reputation of the owner and the company.
Q4. What are the disadvantages of company closure?
Ans. Some of the disadvantages of company closure include loss of investment, job loss, and damage to the reputation of the owner and the company. It can also be a lengthy and expensive process, and creditors and stakeholders may not be fully compensated.
