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winding up of a private company
winding up of a private company

WINDING UP OF A PRIVATE COMPANY

WHAT IS WINDING UP?


Winding up is the liquidation of Company’s assets which are collected and sold in order to pay the debts incurred by a company. When the company winding up process starts first the debts, expenses and costs are paid away and distributed among the shareholders. Once the Company is liquidated it is officially dissolved and the Company ceases to exist.

Winding up is the legal process to shut down a company and cease all the activities that are carried on. After the Company winding up the existence of the Company comes to an end and the assets are observe so that the stakeholders’ interest is not hindered.

A Private Limited Company is an artificial legal person and requires various compliances if the company fails to fulfill these compliances there are fines and penalties or even disqualification of the Directors from further forming a Company. It is always a better option to wind up a company that has become inactive or where there is no transaction.

The shareholders of the Company can initiate the winding up of the company at anytime. If there are secured or unsecured creditors or employees exist at the time of winding up then all the dues need to be settled first. After settling the dues it is mandatory to close all the Company bank accounts. The GST registration must also be surrendered before closing the Company.

After surrendering all the registration the winding up application petition can filed with the Ministry of corporate affairs

TYPES OF COMPANY WINDUP


A company can be windup in two different ways-

  1. Voluntary winding up of a Company

  2. Compulsory winding up of a company

  • VOLUNTARY WINDING UP OF A COMPANY

    The Winding up of a Company can be proceeds voluntarily by the members of the Company, if:

    The company passes a special resolution for its winding up.

    If the Company passes a resolution in general meeting which needs a company to wind up voluntarily as a result of the expiry of the period of its duration, as per the Articles of Association or on the occurrence of any event in respect of which the articles of association mentioned in its provision that the company should be dissolved.

    PROCEDURE FOR VOLUNTARY WINDING UP OF A COMPANY

    1. A company needs to hold a board meeting with the Directors in which a resolution should be passed with a declaration by the directors that they have made an enquiry in the affairs of the Company and the company have no debts or the Company will pay from the proceeds of the assets sold in the voluntary wind up of the company.

    2. A Notice should be issued in writing to call for the general meeting of the Company proposing the resolutions, with a proper explanatory statement.

    3. Pass the ordinary resolution for winding up of the Company in the generally meeting by ordinary majority or special resolution by 3/4 majority of members. The Winding up process of the Company shall commence from the date of passing the resolution.

    4. A meeting of the creditors should be held on after passing the resolution regarding winding up. If the 2/3rd of the creditors is of the opinion that it is in interest of all parties to windup the Company, then the Company can wind up voluntarily.

    5. A notice for appointment of liquidator must be filed with the registrar within the 10 days of passing the resolution for company winding up.

    6. Within 30 days of the general meeting for the winding up the certified copies of the ordinary or special resolution should be passed in the general meeting for the winding up of the Company.

    7. The affairs of the company require to be wind up and prepare the liquidators account of the Winding up account and to get it audited.

    8. Call the final General meeting of the Company.

    9. A special resolution should be passed for the destruction of the books and the papers of the company when the affairs of the company are completely wound up and about to be dissolved.

    10. Within the two weeks of the general meeting of the Company, file a copy of the accounts and file and the application to the tribunal for passing an order for the dissolution of the company.

    11. The tribunal should pass an order dissolving the company within 60 days of receiving the application.

    12. The company liquidator is needed to file a copy of the order with the registrar.

    13. The registrar after receiving the copy of the order will pass by the Tribunal then publish a notice in the official gazette that the Company is dissolved.

  • COMPULSORY WINDING UP OF A PRIVATE LIMITED COMPANY

    Tribunal is responsible for compulsory winding up of private limited companies. Tribunals can windup a company for any of the below reasons:
    If there is any unpaid debts of a Company
    When a special resolution is passed for winding up of the company
    Any unlawful act by a company or the management of the Company
    If the company is involved in any fraudulent or misconduct acts
    If the annual returns or financial statements are not filed for the last five consecutive years with the registrar of companies
    If the Tribunal is of the view that the company should windup

    PROCEDURE FOR COMPULSORY WINDING UP OF A COMPANY

    1. Company needs to file a petition to the tribunal along with the statement of the affairs of the Company that is to be wind up.

    2. The tribunal has the authority to either accept or reject the petition if the person other than company files a petition then the tribunal may ask the company to file objection. It has to submit along with the statement of affairs within 30 days.

    3. Liquidator needs to be appointed by the tribunal for the winding up process of the company. The liquidator carries out the process of assisting and monitoring the liquidation proceedings.

    4. Liquidator is supposed to prepare a draft report for approval. When the draft report gets approved he should submit the final report to the tribunal for passing the winding up order.

    5. It is necessary of the liquidator to forward a copy to the registrar of companies within 30 days; if he fails to do so then he will have to bear with the penalty.

    6. If the registrar of companies finds the draft satisfactory and has no objection against it, then registrar can approves the winding up of the Company and the name of the Company is strike from the register of Companies.

    7. Registrar of companies will send the notice for Publication in the official gazette of India.

REASONS FOR WINDING UP COMPANIES

  • A private Limited Company is a legal entity incorporated under the Companies Act, 2013. Therefore, a company is required to maintain the regular compliances throughout its existence.

  • The process of winding up is for a Company that is not active and that avoids to fulfill the compliance responsibilities.

  • A company can also be closed by filing an application with the ministry of corporate affairs in about 3 to 6 months. This process is entirely online.

  • If a company doesn’t file the compliances on time it suffer fine and penalty including disqualify the Directors from starting another Company. In that way it is better to close a company that is inactive and avoids the potential fines or liability in future.

  • As compared to the maintenance of compliances for a dormant company it is better to wind it up when the time is right.

  • A company that maintained proper compliances can be liquidated easily. In case of any pending of compliances it is necessary to regularize them first. However, it is to be noted that all the registrations needs to be surrendered before liquidating a company.