A company, being a separate legal entity registered under law, is required to be closed as stipulated under the Companies Act, 2013.
Being a corporate entity registered under the Companies Act, 2013, a company is required to file certain mandatory returns whether it does the business or not. Non-filing of returns will attract penalties and prosecution under the Companies Act and the directors of the companies are liable to face the same penalties as well. Cessation of operation cannot be reason for non-filing of returns; a company will continue to exist until formal closure.
A company can formally close its operations and file the required returns to the office of the Registrar of Companies.
Considering its operational status, companies can be categorized as dormant. An operational company having assets and liabilities can be wound up by following stringent regulations of the Companies Act, while a dormant company can file an application to strike off its name from the register subject to certain conditions.
A. Closing of Defunct Company
A defunct company is a company that has never started business or has not been not in operation for the past few years or has no assets and liabilities. A company fulfilling the following conditions can file an application for striking off its name from the ROC since it is defunct:
The application for striking off the name should be submitted along with required fee, affidavits by all directors, indemnity by all directors and the Balance Sheet and Profit and Loss Account not older than 30 days from the date of application certified by a CA.Winding Up
B. Winding Up of Company
An operational company that has assets and liabilities can be wound up by two ways:
1. Voluntary Liquidation
In case of a company who fulfills certain pre-conditions can voluntarily initiate the process for liquidation under the provisions of Insolvency and bankruptcy Code (IBC) 2016 and rules there under.
Voluntary Liquidation can be done only when the company is able to pay off its debts. When the Board of Directors and shareholders decide to wind up the company, an Insolvency Professional (IP), who is a registered with Insolvency and Bankruptcy Board of India (IBBI)
The liquidator realizes the assets and settles the creditors’ accounts in the order of preference. The balance amount available with the company will be distributed among shareholders on a pro rata basis.
2. Winding Up by Tribunal
A company may be wound up by the National Company Law Tribunal (NCLT) on a petition for the winding up of the company.
Tribunal may order the winding up of the company on the following cases:
- if the company pass a special resolution for winding up of the company by the Tribunal
- if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
- if an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up;
- if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or
- if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.