Winding Up of Inactive or defunct Company
There may be several reasons for winding up of the company. In India, more than 30% of Companies registered not succeeded business due to adverse market situations. An inactive Company can make an application to the Registrar with the consent of all Director & Shareholder for striking off its name from the register. Our dedicated team will help you with all the documentation. We extend our support from documentation to preparation and filing.
Winding Up of Inactive or defunct Company
A private limited company is a legal entity and separate from its owners and formed under the Companies Act. The Company continues to exist until its formal closure filed as stipulated under the Companies Act 2013.
Every private limited company is required to file annual returns, whether it does the business or not. Non- filing of due returns will attract penalties and prosecution under the Companies Act 2013. All the Directors are liable for the consequences. Cessation of operation or business can not be a reason for non-filing of returns. It is mandatory to close the Company to be free from compliance burden & Move ahead in Life.
In case the company is inactive for past two years or company did not commence business within one year of incorporation and there is no liability as such, then the company can be closed by filing Form STK-2.
Reasons for winding up of a company
- No risk of getting Disqualified
A company is an artificial person and has no physical existence. It acts only through natural persons. The person acting on the company’s behalf is called a Director. Directors are responsible for filing the compliance on behalf of the company. For non-filing of annual returns of the company, a director can be disqualified for five years under Section 164 of the Companies Act, 2013. Once Director disqualified, a person is not eligible for being appointed as Director in any company.
- No Non-Compliance Risk
Continuing to have a company with MCA exposes you under laws dealing with Benami Transactions and Corruption, Indian Government is very serious about those companies which though incorporated have not filed returns, and the central agencies are looking at these companies and their Director with suspicion. In the e-governance system, there is no scope of escape from the large arms of the law. It is always better to wind up the company in case it is not working.
- To avoid Compliance & Filing Responsibilities
A private limited company is required to file annual returns for each financial year, whether it does the business or not. Documentation, meetings, and filing will be the burden on the system. Cessation of operation can not be a reason for non-filing of returns. Penalties come in multiple forms like additional fee, fines & impressment. If the company is inactive, it’s better to wind up rather than fulfil the compliances each year.
- To avoid fines and penalty for Late Filing
Non-filing of annual returns will attract penalties and prosecution under the Companies Act 2013. The additional fee for non-filing of Annual Return & financial statement is Rs 100 per day per form. The penalty for non-filing of Income-tax return, the company is punishable with a fine of Rs. 25,000 as a minimum which can go up to Rs. 5,00,000. And each Director is punished with a minimum fine of Rs. 10,000 which can go up to Rs. 1,00,000.
The Requirement for Fast Track Exit (STK -2 form )
Fast Track Exit (STK-2) provides an easy method of winding up of an inactive company. However, only if the following conditions are satisfied;
The company has been unable or failed to commence its business within one year of its incorporation. Filing for Certificate of Commencement of Business (INC20A) does not mean that the company has commenced the operation or business.
The company has not been carrying on any business activities since the past two years prior to making an application under FTE (Fast Track Exit Scheme).
There should be no assets or liabilities in the company. Nil assets and nil liabilities are achieved only when the Capital of the company is used to meet the liabilities of the company.
In case the company has opened the bank account make sure that it should be closed and the company does not maintain any bank account as on the date of filing application.
There should not be any pending litigation or assessment from Income Tax, Sales Tax, Central Excise or any other Government authorities on the company.
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Process of Winding Up
- Step 1 - Consent of 75% members of the Company
Consent of the Shareholder should be obtained for winding up of the Company in a general meeting by passing a special resolution with at least 75% voting rights. In the same resolution, any of the directors would be authorised to make an application to ROC for strike off.
- Step 2 - Check the Annual Filing Status
Before filing the application for winding up, we need to check the status of financial statements (AOC -4) and annual returns (MGT 7) for the period in which Company was active or working.
- Step 3 - Closure of all Bank Account
Before filing the application of winding up, all the bank accounts of the Company must be closed, and banker provide the certificate of closure. The directors have to ensure that the Company does not maintain any bank account as on date.
- Step 4 - Surrender of other Registration & Licenses
If the Company obtained any licenses or registration under any government authority or department, the same need to be surrendered before filing the application for closure to Registrar of the Companies (ROC)
- Step 5 - Affidavit & Indemnity Bond of All Director
On the pursuit of strike-off application affidavit & indemnity bond must be accompanied. In the affidavit, all the directors of the Company severally declare that the information furnished is true and correct. And indemnity bond specifies that if any claim arises or observed after the struck off the name, directors of the Company will set off the same in person.
- Step 6 - Preparation of statement of accounts
After the closure of bank accounts and set off all the assets and liabilities a statement of accounts is being prepared. It should not be older than thirty days before the date of application and should be audited by a practising Chartered Accountant.
- Step 7 - Application for striking-off company name
The director of the Company should sign the application digitally for striking-off company name along with affidavit, indemnity bond and statement of account in the Form STK 2 to Registrar of the Companies (ROC) with the fee of Rs 10,000.
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FREQUENTLY ASKED QUESTIONS
Strike Off means removing the company name from the Register of Registrar of Companies (ROC). It is similar to Closure of the Company and Company will not be in existence after Struck Off and can not perform any operation thereafter.
Fast Track Exit (FTE) Mode is the opportunity given by the Ministry of Corporate Affairs to the defunct/inactive companies to get their names struck off from the Register of companies.
- The Company which has not started any business within one year of its incorporation or
- A company is not carrying on any operation or business for a period of two immediately preceding financial years can file an application for Strike off its name from the Register of Companies.
It ordinarily takes at least three months for a company to be officially dissolved, but the length of time can vary considerably if the process is complex. However, a company will discontinue not less than three months of the winding-up notice advertised in the Gazette.
Yes, a Striked off company can revive or restore by following the below-mentioned procedure;
1. File an appeal to the NCLT(National company law tribunal) under section 252 of companies act 2013, in Form Number NCLT 9 and copy of the petition to concerned ROC and Income Tax department under section 252 of companies act 2013, in Form Number NCLT 9.
2. NCLT fix the date of hearing and will hear the petition. On the date of the hearing, if Tribunal satisfied with grounds for the revival of the Company, Tribunal would pass an order for restoration of name of struck off the Company in the Register of Companies (ROC) records.
3. The copy of order needs to file with Registrar of Companies within 30 days of the order.
4. Tribunal may order to the Company to file all pending financial statements and annual returns with the Registrar of companies and specified time for filing.
5. The ROC change the status of the Company from ‘Strike- off’ to ‘Active’.
- If the Company changed its name or shifted registered office from one State to another before three months of making application of striking off.
- If the Company disposed or settled property or rights held by it, before three months of making application of striking off.
- If the Company engaged in any other activity except the one which is provided in the MOA or expedient before three months of making application of striking off.
- The Company has made an application to the Tribunal for the sanctioning of settlement or compromise, and the matter has not been finally resolved.
- The Company is being wound up under the Companies Act or under the Insolvency and Bankruptcy Code, 2016.
Yes, any company, which has been identified as dormant by the Ministry of Corporate Affairs, can apply under FTE.
The Company wishing to get its name struck off from the Register shall file the prescribed Form STK2 online with the Registrar. The Form shall be supplemented with an affidavit, an indemnity bond and statement of account duly certified by a Chartered Accountant in practice.
Yes, an applicant is required to file an application in the prescribed Form STK 2 along with the prescribed fee of Rs. 10,000 and the fee can only be paid through the online payment system.
List of companies filed for striking off will be available on the portal. In case any stakeholder has any objections, he/she may raise an objection by email or letter with the concerned ROC within 30 days from the date of filing Form by the Company.
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