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Closure of a Private Limited Company

As a Private Limited Company is a creation of law, it can be closed by the procedure established under the law only. The Companies Act, 2013 provides an easy method to close a company without going to NCLT in case that company is inactive or defunct. An inactive or dormant company with no assets or liabilities can file Form STK-2 Form to ROC for easy and fast closure. However, if the company is active, or where there are assets or liabilities, then for winding up, an application needs to be made to NCLT under Insolvency and Bankruptcy Code 2016 (IBC).

STK-2 Form: The is empowered to close a company that has not started its operations or if started, has become defunct and has been inactive for over two years. The application of such companies are filed in the prescribed form STK-2, the government fee payable on the STK-2 Form is Rs. 10,000/-

Various Methods to Close a Private Limited Company

Striking off the Company by ROC by declaring it as Defunct: When a Company is inactive for over two years or could not commence its business operations within one year of its incorporation, the easiest method is to make an application for striking off the name of the company by filing an application in Form STK-2 U/s 248 of the Companies Act.

Voluntary Winding Up of Company: With the approval of 3/4 shareholders, the company can make an application to NCLT for its voluntary winding up. Under this process, an Insolvency Professional is engaged in dissolving the company’s assets and paying the lawful claims. On the recommendations of the IRP, the NCLT passes the order for the winding up.

Compulsory Winding Up of Company By NCLT: On an application by the creditors, ROC or the Central Government, the NCLT may start the compulsory winding-up of the company. An Insolvency Professional is appointed to dispose of the assets and pay the liabilities of the company. After the dissolution by RP is complete, the NCLT makes an order of winding up.

Winding Off

  1. The winding-up process is carried before the NCLT winding.
  2. The insolvency professional sells all the assets and settles the liabilities. After winding up, the company comes to an end and can not be revived in due course of time.
  3. The winding-up is final and brings a definite end to the company. No one remains liable for the outstanding liabilities that could not be paid during the liquidation process.

Striking Off

  1. The striking off process is carried before the ROC and is based on the directors’ declarations.
  2. No insolvency professional is involved during the striking off process.
  3. The effect of the company striking off is that there is no compliance requirement, and for all practical purposes, the company has been closed.
  4. However, if there are any government dues, tax dues, or any liability that comes up after the striking-off, the company’s directors remain personally responsible. Before filing for striking off, we advise you to settle all disputes, accounts and pay all dues.

Legal Provisions in the Companies Act, 2013 for Company Closure

Section 248 gives power to the registrar of companies to strike off the name of a company in several situations; the powers of the ROC can be invoked by a company also for its striking off by filing an STK-2 application to the ROC. Here are the situations under which a company can make an application for its closure

Section Particulars
248 (1) a When company failed to commence its business operation with one year of its incorporation
248 (1) c A company that started its business has become defunct or inactive, and such a company has been inactive for the past two financial years.
248 (1) d The MOA subscribers have not paid the share capital within 180 days of the company incorporation. It means that the company just got registered, and its promoter shareholder contributes no capital.

Checklist for filing STK-2 Application for Company Striking off

Three Situations

defunct or inactive under section 248The company must be defunct or inactive under section 248; there are three situations in which a defunct or inactive company can be struck off; check the appropriate section under which the application is to be filed.

Shareholder Consent:

Shareholder ConsentThe company can file the STK-2 application only when the shareholders of the company adopt a special resolution. A minimum of 75% shareholders vote is necessary for passing a special resolution.

Pay all Government Dues:

Pay all Government Dues

Before the decision to close the company is made, ensure that all government dues such as GST, Income Tax, PF, ESIC or any other company’s liability towards the government are fully paid.

Close Bank Accounts:

Close Bank Accounts

 The company’s bank accounts need to be closed, and you should obtain a complete bank statement and the Bank Closure letter from the banker. These documents are filed along with STK-2 FormForm.

No Assets or Liabilities:

New & Unique NameBefore making the STK-2 application ensure that there is no assets or liabilities in the company; a statement of the assets and liabilities are filed with the STK-2 form after attestation with a Practicing Chartered Accountant.

No Litigation:

No Litigation There should not be any pending litigation for the applicant company with the state government, central government, or agencies. Also, check that no Income Tax or GST Assessment is pending.

CA Certification:

No LitigationA Chartered Accountant must attest to the Statement of Accounts showing NIL assets and liabilities in practice. The date of the statement should be within 30 days on which Form 24 is being filed.

Check DIN & DSC Status:

Check DIN & DSC StatusEvery year DIR-3(KYC) must be filed to keep the DIN active; check the DIN status; if the KYC has not been filed, Please do file the DIN KYC. As the application for striking off the company is filed using Digital Signature, check if the DSC is valid for the partners; if not, Go for DSC Renewal.

The Process of Company Closure

Section 248(2) of the Companies Act, 2013 and the Companies (Removal of Names of Companies from the Register of Companies) Rules prescribes a detailed process to close the defunct or inactive company. Following are the step-wise process for company closure.

Step - 1: Calling of EGM of the shareholders

Calling of EGM of the shareholders

To file the application in STK-2 Form for Company Closure to the ROC, a meeting of the company’s shareholders must be called in to decide about the closure with at least 75% voting rights.

Step - 2: Surrender of Registration & Licenses

Surrender of Registration & Licenses

If the company had registered under GST or obtained licenses under any government department, the same need to be surrendered before an application for closure is filed by the company.

Step - 3: Bank A/c Closure & Prepare Financial Statement

Bank A/c Closure & Prepare Financial StatementThe bank accounts of the company must be closed, and a certificate from the banker is needed. Prepare a financial statement with Nil Assets and Liabilities, A Practicing CA or Auditor shall certify it.

Step - 4: Affidavit & Indemnity Bond of All Directors

Affidavit & Indemnity Bond of All Directors

All directors and shareholders have to swear an affidavit that all information and documents being filed are true and correct and an indemnity bond that the directors shall pay in person if any liability comes up.

Step - 5: Filing of STK-2 Form

Filing of STK-2 Form

Check that the company has filed all pending ITR & ROC Return to the ROC. The application for closure of the company filed online with a digital signature in Form STK-2 with the government fee of Rs. 10,000/-

The list of Documents Required for Company Closure

S.No Document
1. All ITR and Returns Filed with ROC
2. Board Resolution Authorising the Closure
3. Affidavit from all the Directors
4. Indemnity Bond from all the Directors
5. Consent of 75% of Shareholder
6. Bank Closure Statement
7. CA Certified Statement of Accounts
8. Identity and Current Address Proof of partners

Stamp Paper & Notary

All the company directors have to file an affidavit and indemnity bond prepared on the appropriate value of the Non-Judicial Stamp paper. The affidavits and the indemnity bonds are required to be witnessed/attested by a Notary Public.

The stamp duty may differ from state to state; hence you should check the appropriate stamp paper value from the local vendors; generally, Rs 100 stamp paper is applicable for indemnity bond and Rs. 50-100 is applicable on affidavits.

The Notary attestation is an activity where the deponent of the affidavit of the person making the indemnity bond signs in the presence of the Notary. Hence, you should take the affidavits and indemnity bond after purchasing the stamp paper to the local Notary’s office for attestation.

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Is Newspaper Advertisement Necessary While Closing the company?

The newspaper publication is mandatory in case of voluntary or compulsory winding off before NCLT. The provisions are silent regarding the striking off; we recommend publishing Newspaper Notice as to an abundant caution even in case of the striking off application.

Which date should one reckon for cessation of company business?

The relevant date from which the company shall be considered inactive is when it ceased to carry on its revenue-generating activity; mere receipt or payment of money from earlier transactions after cessation of commercial activity shall not affect the date on which the company has become inactive or dormant.

How to Register a Sole Proprietorship Firm?

Ease of formation is the most significant feature of the sole proprietorship form of business. There is no prior registration required to start a proprietorship firm. Similarly, after starting the business, no law makes it mandatory to register the sole proprietorship. No agreement, deed, or documents are to be prepared for creating a proprietorship, and the firm’s registration is also not required.

Whether up to date annual filing is required before the closure of the Company?

The company’s annual returns in forms AOC-4 and MGT-7 need to be filed for the financial years during which the company was active. For example, if the company was active until 25th October 2020, then the FY 2020-21 annual return must be filed before the company Striking Off application is filed.

Is it necessary to file ITR of Company?

If the company has commenced the business operations and subsequently becomes defunct, the ITR must be filed up to the Financial Year when the company was active. However, if the company could not start the business operations, it may file STK-2 without filing the ITR.

What companies are closed as Defunct by filing Form STK-2

Only the following categories of companies can be closed by filing Form STK-2
  1. The companies having No Liabilities in their Balance Sheet
  2. There should not be any Litigation Pending
  3. There is no dispute among the shareholders/directors of the company
  4. The company could not start their business within one year since its incorporation or in case it started its business has been inoperative since the past two previous financial years.
  5. The promoters did not pay the capital of the company.

Who can sign the application for winding up of a company?

Form STK-2 (Application for Winding up of the company) is filed online with the digital signature of the applicant. For the purpose of signature, the DSC of either shareholder or director can be used as per the approval of the shareholders as taken in the EGM. The form STK-2 is further required to be attested by a CA, CS or CMA.

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