Know Your Compliance for Winding up of a Company
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Basic Facts on Winding up of a Company
- Winding up is the liquidation of the Company’s assets which are collected and sold to pay the debts incurred.
- When the Company winding up takes place, firstly, the debts, expenses and costs are paid away and distributed among the shareholders.
- Once the Company is liquidated, it is formally dissolved, and the Company ceases to exist.
- Winding up is the legal mechanism to shut down a company and cease all the activities carried on.
- After the Company winds up, the existence of the Company comes to an end, and the assets are monitored so that the stakeholder’s interest is not hampered.
- It is always better to wind up a company that has become inactive or where there are no transactions. The shareholders of the Company can initiate the winding up of the Company anytime.
- If the Company fails to maintain these compliances, there are fines and penalties or even disqualification of the Directors from further incorporating a Company.
- A Private Limited Company is an artificial judicial person and requires various compliances.
- If secured or unsecured creditors or employees are on a roll, then all the dues need to be settled.
- After settling the dues, closing all the Company bank accounts is necessary.
- The GST registration must also be surrendered in case of Company wind up.
- Once all the registration is surrendered, the winding up application petition can be filed with the Ministry of corporate affairs.
Types Of Company Windup
Voluntary Winding up of a Company
The Winding up of a Company can be done voluntarily by the members of the Company if :
- The Company passes a special resolution for winding up the Company.
- The Company, in general meeting, passes a resolution which requires a company to wind up voluntarily as a result of the expiry of the period of its duration and as per the Articles of Association or on the occurrence of any event in respect of which the articles of association provide that the Company should be dissolved.
Procedure for Voluntary Winding Up of a Company
Convene a board meeting with the Directors in which a resolution should be passed with a declaration by the directors that they have enquired into the affairs of the Company and the Company has no debts or the Company will pay from the precedes of the assets sold in the voluntary wind up of the Company.
Notices should be issued in writing to call for the Company’s general meeting to propose the resolutions with a suitable explanatory statement.
Pass the ordinary resolution for winding up of the Company in the general meeting by ordinary majority or special resolution by 3/4 majority. The Winding up of the Company shall commence from the date of passing the resolution.
A meeting of the creditors should be conducted on the same day or the next day of passing the resolution regarding winding up. If the 2/3rd value of the creditors is of the opinion that it is in the interest of all parties to wind up the Company, then Company can wound up voluntarily.
Within 10 days of passing the resolution for the Company winding up, a notice for the appointment of a liquidator must be filed with the registrar.
Within 30 days of the general meeting for the Winding up, the certified copies of the ordinary or special resolution passed in the general meeting for the Winding up of the Company.
The affairs of the Company need to be winded up, and prepare the liquidator’s account of the Winding up account to get audited.
Call for the final General meeting of the Company.
A special resolution should be passed for the disposal of the Company’s books and papers when the affairs of the Company are completely wound up, and it is about to be dissolved.
Within two weeks of the Company’s general meeting, file a copy of the accounts and apply to the Tribunal in form STK-2 for passing an order for the dissolution of the Company.
The Tribunal shall pass an order dissolving the Company within 60 days of receiving the application.
The company liquidator is required to file a copy of the order with the registrar.
The registrar will then, on receiving the copy of the order passed by the Tribunal, publish a notice in the official gazette that the Company is dissolved.
Compulsory Winding up of a Private Limited Company
The Tribunal is responsible for this kind of wind-up of Companies.
Here are the reasons for the same:
- Unpaid debts of a Company
- When a special resolution is passed for winding up
- An unlawful act by a company or the management of the Company
- If the Company is involved in fraudulent acts or misconduct
- If the annual returns or financial statements are not filed for five consecutive years with the ROC
- The Tribunal is of the view that the Company should wind up.
Procedure for the compulsory Winding up of Company
File a petition to the Tribunal along with the statement of the affairs of the Company that is to wind up.
The Tribunal will either accept or reject the petition if a person other than the Company files a petition, then the Tribunal may ask the Company to file an objection. It goes along with the statement of affairs within 30 days.
The Tribunal must appoint a liquidator for the winding-up process. The liquidator carries out the function of assisting and monitoring the liquidation proceedings.
A liquidator is supposed to prepare a draft report for approval. When the draft report gets approved, he shall submit the final report to the Tribunal for passing the winding-up order.
The liquidator must forward a copy to the ROC within 30 days; if he fails, he will get a penalty.
If the ROC finds the draft satisfactory, he approves the Company’s winding up, and the Company’s name is struck from the Companies register.
ROC sends a notice for Publication in the official gazette of India
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