Compliance For Company Closure as per Companies Act, 2013

The closure of a company is a significant event that marks the end of its operations. While it may seem like a failure or a setback, closure can also signify a strategic decision made by the company's management to focus on new opportunities or to address challenges that cannot be overcome.

Understanding the importance of company closure is crucial, as it allows stakeholders to gain insights into the decision-making process and enables them to plan their next steps accordingly. The provisions of the closure of the company are mentioned in the Companies Act, 2013 and all the provisions need to be abided by very strictly.

The process of company closure is a way to end business operations due to multiple reasons. For the purpose of closure of a company there is a necessary process of liquidation of a company which is mandatory before closure of a company.

The procedure for winding up a company or closing a company in India is as follows:

Procedure of Voluntary company closure or winding up

Steps to be followed in case of voluntary winding up a company are as follows:

• Step 1: Board Resolution must be passed by all the board members regarding voluntary winding up of the company.
• Step 2: Approval from shareholders must also be taken for the purpose of winding up of the company.
• Step 3: Trade creditors must also give their consent that they do not have any responsibility towards the liquidation of the company.
• Step 4: A document of Declaration of Solvency must also be prepared.
• Step 5: Creation of Report of Assets and liabilities of the winding company by the appointed liquidator.
• Step 6: Application of company closure to the Tribunal for liquidation of the company must be filed by the liquidator.
• Step 7: After verification of documents, the Tribunal will pass a resolution for dissolution of the company within 60 days of application.
• Step 8: Advertisement in the Newspaper and removing the name from the list of registered companies.

Procedure for Compulsory winding up a Company

The procedure for compulsory winding up a company is as follows:

• Step 1: Company must file a petition to Tribunal and present the statement of affairs of the company.
• Step 2: Company must appoint a liquidator to carry out all the company closure operations.
• Step 3: The liquidator must draft a report and wait for the approval. Once the approval is received, the report must be submitted to the Tribunal.
• Step 4: If the ROC finds the draft report satisfactory, they will approve the winding process and strike off the company name from the list of registered companies.
• Step 5: ROC will send the notice for the publication of this report to the Official Gazette of India.

According to the Companies Act, 2013 there are two main types of processes through which the process of company closure can be initiated. These are:

Voluntary Company Closure

• Dissolution by Shareholders: This subheading will explore the process by which shareholders collectively decide to dissolve the company and cease its operations.
• Strike-off by Registrar of Companies: Here, we will explain the circumstances in which the Registrar of Companies can strike off a company from the official register due to non-compliance or other specified reasons.
• Voluntary Winding-up: This subheading will cover the voluntary winding-up process initiated by the company's shareholders, including the appointment of a liquidator and the subsequent steps involved.

Involuntary closure by Tribunal

• Compulsory Winding-up by Court: This subheading will focus on the scenarios in which a court orders the winding-up of a company due to factors such as insolvency or failure to meet financial obligations.
• Dissolution by Government Authorities: Here, we will explore the instances where government authorities possess the power to dissolve a company based on specific circumstances, such as non-compliance or regulatory violations.

There are multiple reasons which leads to closure of a company, and these reasons are as follows:

• Financial difficulties: A company may face significant financial challenges, such as declining sales, increasing debts, or inability to secure funding. If these issues become insurmountable and there are no viable solutions, the company may choose to close down.
• Market changes: Industries and markets are dynamic, and sometimes a company's products or services become obsolete or face intense competition. If a company cannot adapt to changing market conditions or sustain profitability, it may opt for closure.
• Strategic decision: Sometimes, a company may decide to shut down a specific business unit or division as part of its strategic planning. This could be due to a shift in focus, a desire to consolidate resources, or to redirect investments into more promising ventures.
• Legal or regulatory challenges: Companies may face legal or regulatory issues that impede their ability to operate effectively. This could include violations, lawsuits, compliance challenges, or changes in regulations that make their business model unviable.
• Owner's retirement or personal reasons: The owner or founders of a company may choose to retire or pursue other personal interests, leading to the decision to close the business. This is especially common for small or family-owned businesses.
• Merger or acquisition: In some cases, a company may be acquired by another entity or merged with another company. As part of the consolidation process, redundant operations may be closed down to streamline resources and maximize efficiency.

The company closure is the process of winding up the operations of a company due to various reasons. The process of liquidation of a company involves appointment of a liquidator who will finally initiate and carry on the liquidation process. Closing a company is a complicated process and it requires expert consultation to close a company successfully to avoid any penalties in the future.

Consult with Professional Utilities for more information on Company closure or liquidation and get the expert advice on your company closure to avoid any penalty.