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Closure of Private Limited Company

Are you looking to close your Private Limited Company? Kanakkupillai offers a seamless and hassle-free process for the Closure of Private Limited Company. Closing a Private Limited Company, also referred to as Dissolution of a Company or Winding Up a Company, is a careful process covering the settlement of the company's business, split of assets, and the legal termination of its existence.

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Overview of Closure of Private Limited Company

At Kanakkupillai, we understand that running a business comes with its challenges, and sometimes, despite our best efforts, we need to close our business.

The Private Limited Company is defined in the Companies Act 2013 as a business entity with a minimum share capital and a restriction on the transferability of its shares. It is a company that limits the number of its members to 200. The business structure is quite popular among the Small and Medium-Sized Enterprises (SMEs). It offers limited liability protection, flexibility in the business, and decision-making. There are several advantages of a Private Limited Company, such as easy access to capital of the business through equity shares, separate legal identity, perpetual succession, and limited liability.

However, there are instances when closing the Private Limited Company becomes necessary, mainly when the company is not carrying any business or when continuing the business is no longer desirable or profitable. A Closure of a Private Limited Company refers to a private company that has completed the process of winding up its operations, either voluntarily or through the order of a court of law. A Private Limited Company's closure application is submitted to the Registrar of the Companies (RoC). To guarantee that all debts are paid off, taxes are paid, and employees are paid, the closing process entails a number of legal and financial procedures. Directors and shareholders are key players in the decision-making process.

Some Private Limited Companies can choose voluntary winding up, and some may be forced to close because of insolvency or failure to comply with legal obligations. The main goal of closure is to ensure the business is legally dissolved, its debts are paid off, and no new liabilities emerge at the end of the process.

What is a Private Limited Company?

As per Section 2(68) of the Companies Act 2013, a private limited company is a kind of company that has a minimum share capital that restricts the right to transfer its shares. You only need a minimum of two (2) shareholders to incorporate a Private Limited Company in India.

What is the Closure of a Private Limited Company?

Closing or closure of a Private Limited Company refers to the process of officially shutting down a business and legally ending its existence as a registered entity. The reasons for closure can be financial difficulties, business reorganisation, or a decision to stop operations.

Importance of Closure of the Private Limited Company

There are several advantages of Closing a Private Limited Company in India, and some of them are mentioned below:

Financial Relief to the Directors and Shareholders
Less Legal and Financial Liabilities
Avoid ongoing costs
New Opportunities for Business Ventures

Grounds for Closure of a Private Limited Company in India

Section 248 of the Companies Act 2013 provides grounds for the Closing of a company in India:

The company has not commenced its business within one year of its incorporation.
The company is not carrying any business or operation for two (consecutive) preceding financial years. It has not made an application within such period to obtain the status of a Dormant Company under Section 455 of the Companies Act, 2013.

Closure Options for a Private Limited Company

Defunct Company Closure: Companies that have not been carrying on any business or have not been in operation for at least two (2) financial years, have no assets or liabilities, and have no pending legal proceedings or tax liabilities in their name are eligible for this kind of closure. Such type of company obtains the status of a ‘Dormant Company. The main advantage of a Defunct Company Closure is that it is relatively quick and involves a less complicated process compared to others.
Voluntary Winding Up: Companies that have decided to cease operations voluntarily, have paid off their debts to stakeholders, and have decided to cease operations voluntarily choose this option. The process is quicker, and since it is a planned closure, the company has time to set off the debts and liabilities of its stakeholders as well as its employees.
Compulsory Winding Up: When a company becomes insolvent and unable to pay its shareholders' debts, has not been carrying out any business for a year, its debt exceeds a specific amount or has acted against the national or public interest, the process of compulsory winding up is carried out when the National Company Law Tribunal (NCLT) is responsible for winding up insolvent companies in India.

Requirements for Winding Up a Private Limited Company

The following requirements must be met before closing a private limited company in India:

No Liabilities or Assets:

There should be no open bills or responsibilities on the company.
All the company's assets and liabilities must be fully cleared.

Filing of Tax Returns and Financial Statements:

All taxes and responsibilities must be paid.
This includes the submission of income tax returns, GST reports, and other financial records needed by law.

Settlement of Outstanding Debts and Liabilities:

All bills, collectors, and other financial tasks must be paid off.
The company should not leave any unpaid bills or duties.

Obtaining Necessary Approvals:

The regulatory bodies that have an impact on the company's operations must provide the required clearances and approvals.

Eligibility Criteria for Closing a Private Limited Company

A private limited company can be closed if it meets specific qualifying criteria:

Inactivity: The company must have been inactive for at least one year, which means that it must not have engaged in any business activity during this time.
Debt-Free: The company's debts and responsibilities should be cleared, and all financial obligations should be settled.
Asset Distribution: All company assets and duties must be fully split or settled.
Regulatory Compliance: The company must have gotten the necessary approvals and clearances from the authorities.

Documents Required for Closing a Company in India

To close a company in India, the following documents are required

Certificate of Incorporation of a company
Memorandum of Association of a Company
Articles of Association of a Company
Board Resolution Copy
Resolution by 3/4^th of creditors of the Company accepting the dissolution
Statement of Accounts of the Company
Petition for Winding up: WIN 1 or WIN 2
Form WIN 4 consists of a statement of affairs of the company
Form WIN 6 contains an advertisement for winding up the company in the vernacular newspaper
Form WIN 5 contains the affidavit of concurrence

Checklist for Closing a Company in India

Ensure the business has no obligations or property
File all applicable tax returns and financial statements for three years
Settle all existing duties and liabilities
Prepare the applicable files, including the balance sheet, profit and loss account, tax returns, bank account statement, and share certificates.

Procedure of Closing a Private Limited Company in India

The process for closing a Private Limited Company is different for different types of Closure.

1. Defunct Company Closure

A defunct company can apply for a strike off of its name from the company register with the Registrar of Companies. The detailed procedure includes:

Before making an application under the Fast Track Exit Scheme, ensure that the company has no pending liabilities, dues, or assets and has not conducted ongoing business transactions or operations in the last year.
Once all debts are cleared, the Board of Directors shall pass a simple resolution to strike off the name of the company.
Form STK-2 contains the application for striking the name of the company, which shall be filed to the RoC. The application should consist of the following:
- Board Resolution
- An affidavit from the directors stating that all debts of the company are cleared
- A statement containing the cessation of operations of the company
- A copy of the latest financial statement of the company
The RoC shall scrutinise the application and may publish a notice in the official gazette or on its website. The RoC may ask for any additional documents.
If there are no objections, the RoC will strike off the name of the company from the Register, and the company ceases to exist legally.

2. Voluntary Winding Up

The process for Voluntary Winding up a Private Limited Company involves:

The process begins by passing a Special Resolution at the shareholders' general meeting. The Resolution is filed with the RoC in Form-22.
The board of directors of the private limited company in Form 149 declares that the company is solvent and has paid all its debts within a year.
The shareholders of the company appoint a liquidator to carry out the winding-up process. The liquidator is responsible for selling the company's assets, settling outstanding debts, and distributing the remaining assets to shareholders.
Once the liquidator is appointed, a copy of the resolution is sent to the RoC within 10 days of passing. A notice for the winding up of the company has also been published in two newspapers, one in English and one in the vernacular language.
The liquidator takes over the company's assets, settles debts and liabilities, and distributes the surplus funds among the members as per their shareholding.
Once the liquidation is complete, the liquidator will prepare a final report detailing the winding-up process.
The liquidator must then file a final return and apply to the RoC for the dissolution of the company in an application for dissolution in the form of Form- 28.
If the RoC is satisfied with the process and no further objections are raised, the company is officially struck off the register.

3. Compulsory Winding Up by Court:

The process of compulsory winding up of a company by a court begins with:

A Petition for Winding Up of a company is filed before the High Court or NCLT by either of the following:
- Shareholders
- Creditors
- The company itself
- The Registrar of Companies
- The Central Government
High Court or NCLT hears the petition, and if they are satisfied that the company meets the eligibility criteria, they issue an order for winding up.
High Court or NCLT appoints a liquidator to oversee the winding-up process, including selling the assets, paying creditors, and distributing any remaining assets among shareholders.
Once the court issues the order for winding up, an advertisement about the winding-up order is published in newspapers. The order has also been filed with the RoC.
The liquidator takes over the company's assets, disposes of its properties, and distributes the proceeds among the creditors and shareholders as per the applicable priority.
Once the winding-up process is complete, the liquidator submits a final report to the court.
If the court is satisfied with the final report, it will issue an order for the dissolution of the company. After the court's order, the company is officially removed from the register and ceases to exist.

Why Choose Kanakkupillai?

Kanakkupillai is a trusted name in the industry, offering seamless and reliable services for business registration, conversion, and compliance. When you choose Kanakkupillai for the closure of your private limited company, you benefit from the following:

Expert Advice: The Kanakkupillai team of experts guarantees a seamless conversion procedure by guiding procedural, financial, and legal matters.
End-to-End Services: Kanakkupillai handles every stage of the closure procedure, from paperwork to filing.
Timely Completion: We guarantee that the closure is finished as soon as feasible, without any interruptions.
Reasonably priced: Kanakkupillai provides all services at cheap prices, making it affordable for new and expanding companies.
Client-Centric Approach: We guarantee that all of your questions are answered and provide personalised services depending on your company's needs.

Frequently Asked Questions

How long does it take to close a private limited business in India? +

The shutdown of a private company in India can take between 6 months and 12 months based on the complexity of the deal and the reporting requirements.

Can a dead company be closed? +

Yes, an inactive company can be stopped if it meets the registration conditions and follows the necessary process.

Can a private company be wound up for default? +

No, a private company cannot be stopped without paying the bill. All bills and due fees must be paid before finishing starts.

What is the cost of closing up a private business in India? +

The cost of closing up a private company in India changes based on the complexity of the case and the law and professional costs involved.

Can a closed private company be revived? +

No. A closed private company cannot be reopened. Shareholders and partners must start a new company if they want to continue the business.

What is the difference between closing up and selling a company? +

Exiting a company means taking its name from the ROC list, while closing a company means finishing its affairs, dividing its assets and ending its legal presence

Can a private company be disbanded voluntarily? +

Yes, a private company can be wound up willingly if it meets the inclusion standards and follows the appropriate process.

What part does the ROC play in the shutdown of a private company? +

The ROC reviews and accepts applications to end a private business, issues a notice of closure, and keeps the company's records.

Can a Private Limited Company be closed if it has assets and liabilities? +

No, a Private Limited Company cannot be closed if it has assets and liabilities. The assets and liabilities must be fully distributed or settled before the closure can be initiated.

What is the impact of closing a Private Limited Company on its shareholders? +

Closing a Private Limited Company can impact its shareholders in several ways, including the distribution of assets, the payment of debts, and the termination of their shareholding.