Close Private Limited Company

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Close Private Limited Company

LIQUIDATION OF THE COMPANY

When a company starts to wind up its business, the process of Liquidation begins. It can be any reason that the company has decided to stop with further operations like insolvency, Starting new Business or unwillingness to continue the business and many more. Liquidation of the company covers the ultimate settlement of the company assets. 

To repay liabilities and settle debts, the company might have to sell its assets. And if in case the reason for liquidation is bankruptcy, the liquidator has to sell his assets to repay all pending liabilities. And if any kind of capital remains after repaying to the creditors, then the capital will be distributed among the shareholders of the company.

WAYS TO ClOSE PRIVATE LIMITED COMPANY

Close Private limited Company
 

To close private limited company, it means to completely shut down all business transactions, operations, selling off all company assets to other people or entities, and to pay off company debts.

After clearing all the debts, the remaining capital or assets will be disturbed among the shareholders of the company based on the capital they have invested. 

The wide up process takes place in two main possibilities, 

    1. Compulsory winding up The compulsory winding up of a company can be performed by order of a court or by government, individual declaration presented by the directors during the company’s board meeting, which proposes a court interference. If any official person of the company files a petition in the court or a tribunal stating that the company is involved in any fraudulent/unlawful activities, it needs to be winded up compulsorily.
    2. Voluntarily winding up When all the Directors decide and pass a written resolution, to sell off all company assets or to transfer the shares to another entity.
 

What are the benefits of winding up a company?

Free from debts after liquidation: Once the liquidation process is over, the directors and all company officials are free from all creditor liabilities and pressure.

Avoiding legal action against the company:If the resolution is passed voluntarily by directors, they will neglect legal action taken by the court or the tribunal, and provide a platform to company directors to concentrate on other business opportunities.

Low cost for liquidation process: The cost or expenses involved in the liquidation process is relatively low, as charges will be applicable on the sale of assets.

All lease agreements will be cancelled: If any company or entity has entered into a lease for a prescribed time, during the liquidation process, it will terminate all the terms and conditions of the lease. If any penalty has to be paid, it will be deducted from the sale of assets.

Advantages for creditors: After a prolonged struggle, creditors will benefit from the liquidation process as they will be eligible for a default payment, with respect to the proposition of credits given by all creditors.

RULES TO FOLLOW FOR WINDING UP A COMPANY

    • There should be an official Board meeting assembled for the approval to close private limited company.
    • Written notice should be issued for gathering a general meeting to pass a resolution on the procedure to close private limited company.
    • An official liquidator or insolvency professional should be appointed.
    • The acknowledged towards the resolution passed at the meeting for voluntary winding up of the company should be done by the Income-Tax Department. 
    • Along with that, the No Objection Certificate (NOC) should be collected from the Income-tax department.
    • There should be creditors meeting conducted to get approval from the creditors regarding the winding-up process if the creditors are in the majority of numbers. Given that creditors are owed 2/3rd of the company debts.
    • Before initiating a wind-up process, an intimation should be conveyed to the Insolvency and Bankruptcy Board of India (IBBI) within seven days from the date of approval of the resolution.
    • A public announcement in an official newspaper should be delivered within 14 days of passing the wind-up resolution. One in an English newspaper, and one in the local newspaper, where the registered company is located.
    • Once the process of liquidation begins, the entire winding-up act should be completed within 12 months.

PROCEDURE FOR COMPULSORY WIND Up.

    • The petition to the tribunal needs to be filed along with the statement of affairs of the disputed company.
    •  Once the credibility of the petition is scrutinized, the tribunal may accept or reject the filed petition.
    • In this case, the tribunal itself will appoint the liquidator.
    • The liquidator will administer all assets of the company, check the book of accounts, and gather into a draft/report.
    • These reports are to be forwarded to the tribunal after the winding-up committee had received the same.

REQUIRED DOCUMENTS to close private limited company

The documents that are required to close the private limited company are;

    • Authorized PAN card of the company
    • The company’s bank account closure certificate.
    • An indemnity bond, which needs to be notarized by the directors.
    • Latest statement of company accounts.
    • Statement of accounts audited by Chartered Accountant (CA) related to all assets and liabilities of the company. 
    • Proof of approval of the resolution by 3/4th of board members.
    • Application for removing the name of the company.
 

Process to Close Private Limited Company

Step 1

legaltoast will address all your queries about winding up of a “Private Limited Company”

Step 2

Our experts and professionals will help you get the entire process done

Step 3

Within the promised timelines,  your documents will be delivered to you by courier. 

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FAQs on Close Your Private Limited Company

Yes, liquidation is important for the given below reasons-

    • As soon as the liquidation process is completed, the directors and company officials are free from all creditor liabilities.
    • The company can avoid legal actions from a court or tribunal. If in any case, the company directors pass a voluntary declaration.
    • The cost included in the liquidation process is relatively cheaper than other modes of closure.
    • It benefits the creditor as they will be qualified for default payment from the sale of assets.

Some of the most prominent causes for a company liquidation are-

    • Insolvency
    • Bankruptcy
    • Unwillingness to continue the business. 

The liquidation strategy leads to liquidating, which means selling the assets of a company before winding it up. By starting the liquidation process, the company may sell its assets to meet obligations and repay liabilities.
According to the liquidation strategy, a liquidator is appointed to manage the process of selling the company assets. After paying off to the creditors remaining capital gets distributed among the shareholders of the company.

The liquidation indicates the end of business operations by a company and which may lead to an inevitable loss of jobs for the employees. Still, the company administration may look to restructure the organization and save jobs in the process. However, the employees will hold the power to claim dues owed to them by the company.
If an employer goes into liquidation, there will be no business continuity and the employees will be jobless. But, the employees still hold the right to claim dues (salary, allowances, etc.) owed to them by the company. If the insolvent company has no funds to pay the employees, then they can approach the National Insurance Fund (NIF) for payments due.
Overall, to complete the liquidation process of a company in India can take up to 2 years, from the date of application if it is carried out by compulsory liquidation. It might take comparatively less amount of time for a voluntary liquidation process. The duration might differ from company to company, depending on the complexity of the process involved.
Once the company is liquidated, the liquidator can sell off its assets and repay all pending liabilities. The remaining balance, if any, after repayment to the creditors, gets divided among the shareholders of the company.
Yes, Even after liquidation you can still be a director of the company but, you won't be having any control over its business affairs. You still can set up a new company and be the director. But, the new company cannot have a similar name to the liquidated company.

No. A company is not allowed to carry any trading activities while undergoing liquidation, as the directors do not possess any control over their business affairs.

If the liquidator comes to know about any trading activity being initiated by the directors, he can start prosecution against the directors.
Exceptions:

    • The liquidator allows trading if it is towards repaying the creditors
    • He will enable trading if it is for collecting the debts accrued by the business.
No. You cannot liquidate your company. Only the shareholders of a company can go for voluntary liquidation. The appointed licensed insolvency practitioner can only start the liquidation process.
Normally, directors are not personally liable for company debts. Therefore, if the company fails to pay off its debts and the creditors move court, only the company assets are put on risk, not the personal assets of the directors.
Yes. One can reverse a Members’ Voluntary Liquidation (MVL). However, it is not very easy to do, just by changing their minds. It can only be done by making an application to the concerned High Court and requesting an annulment of the said liquidation. This application needs to be made within six years of the liquidation.
Yes, he can. But, a director is not recommended to resign from a company when it is under the process of liquidation. This is more so for a director if he has presented a declaration for solvency. However, if he resigns in an inescapable situation, he does not need to file the DIR-12 Form as the status of the company is ‘under liquidation’.Yes, he can. But, a director is not advised to resign from a company when it is under the process of liquidation. This is more so for a director if he has provided a declaration for solvency. However, if he resigns in an unavoidable situation, he doesn't need to file the DIR-12 Form as the status of the company is ‘under liquidation’.
When a company is dissolved and gets liquidated, the name is removed off from the company register. The name can be made available for other companies for future use.
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