Everything You Need to Know about Private Limited Company Closure Procedure in India

pvt company closing — (source: carajput)

Entrepreneurs establish a company to work on some innovative ideas and likewise register with the Ministry of Corporate Affairs (MCA). In case they fail to focus on their mission or cease their business activity due to some reasons, they may want to close it. When companies cease to exist as legal entities, it is referred to as the closure of a company. There are different ways a Private Limited Company can cease its existence. Read on to know about the closure procedure of Private Limited Company.

What Is the Procedure for Closure of Private Limited Company ?

As stated in the introductory paragraph, there are different ways to close or wind up a Private Limited Company. The most common types of these methods include Voluntary winding up a company and Compulsory winding up a company.

A company can voluntarily wind up its activities in case it fails to carry out business to meet a financial obligation. On the other hand, compulsory winding up occurs when a company does an unlawful, fraudulent act or is involved in some unlawful, fraudulent activities. In such a case, these companies will be wound up by the Tribunal as per the Companies Act, 2013.

While closing a Pvt. Ltd. company, businesspersons need to follow specified procedures depending on the cause. The following sections separately discuss both the procedures of Closing a Private Limited Company. Read on!

1. Procedure for Voluntary Winding-up a Company

Follow the steps to Voluntary winding up a company.

Step 1 - Company must pass a resolution in a general board meeting where the majority of directors must give their consent.

Step 2 - That company must pass a special resolution where ¾th of shareholders must give their approval.

Step 3 - Trade creditors must give their consent that they do not have any responsibility if a company gets wind up.

Step 4 - Private Limited Company must prepare a Declaration of Solvency, and Trade Creditors must accept the same.

Step 5 - Next, an appointed liquidator will carry out the procedure and create a report on assets, debts, properties. They must present this report of winding-up at the general meeting and pass a resolution for dissolving a Private Limited Company.

Step 6 - Company liquidator will make an application to the Tribunal for dissolving a company.

Step 7 - After verifying the process and submitted documents, Tribunal will pass an order of dissolution within 60 days of application. Companies must file a copy of this record with ROC.

Note: Companies must present and file these documents in a prescribed format, and any other applicant cannot take the name of the wound-up company for 2 years of filing and approving the closure process.

2. rocedure for Compulsory Winding up a Company

Follow the steps to Compulsory winding up a company.

Step 1 - A Private Limited Company must file a petition to Tribunal and present the statement of company affairs.

Step 2 - The Tribunal can either accept or reject the petition. In case an individual outside the company files the same, the Tribunal may ask the company to reject the petition. This must be present on the statement of company affairs within 30 days.

Step 3 - Here, a Private Limited Company must appoint a liquidator who will carry out all the proceedings.

Step 4 - Next, that liquidator must draft a report and wait for the approval. After getting approval, the liquidator must submit the final report to the Tribunal. They must submit this report to the ROC within 30 days. In case the liquidator fails to submit the report, they have to pay the penalty.

Step 5 - If ROC finds the draft report satisfactory, they will approve the winding-up process and strike off the company name from the list of registered companies.

Step 6 - At last, ROC will send the notice to complete the publication of this report in the Official Gazette India.

The above-mentioned sections thoroughly answer the question of how to close a private limited company.

A Private Limited Company can close its operations for several reasons. Read the next section to know about these in detail!

What Are the Top Reasons for Closure of Private Limited Company?

Here is a list of reasons leading to Pvt. Ltd.'s closure in India.

Directors wish to close a Private Limited Company.
A court order has been issued against a Private Limited Company.
The Pvt. Ltd. Company has failed to hold statutory gathering or requirement.
A Private Limited Company gets bankrupt.
The Pvt. Ltd. Company lacks the required number of members.
A Private Limited Company has not submitted financial accounts for 5 years.

Now that business persons know about the Private Limited Company closure procedure, they can do the same without any difficulty.

Frequently Asked Questions

✓ Does selling up a company qualify as a process to close a Pvt. Ltd. company?

Yes, selling up a company qualifies as a process to close a Pvt. Ltd. company. Selling up a Private Limited Company is a kind of voluntary winding up. Companies can sell the majority of their shares.

✓ Can a company close its operations in case they have unpaid debts?

Yes, a company can close its operations if they have unpaid debts.