Winding Up Private Limited Company
A private limited company or famously known as LTD is a privately held company. This implies that the business limits owner liability to its shares and limits number of shareholders to 50. It also restricts shareholders from trading shares publicly.
The closing of a Private Limited Company may happen due to many reasons voluntarily or by the tribunal. Business loss, bankruptcy, passing away of promoters, etc., are few of the reasons why a Private Limited Company closes.
Requirements for closing Private Limited Company
Voluntary closing of Private Limited Company:
This is possible if,
- The Company wants to close the operations by passing a special resolution
- There is an occurrence of an event as mentioned in the articles of association that requires the Company to be shut down
- The Company’s duration expires, if any, as fixed in the articles of association
Compulsory closing of Private Limited Company:
This happens in the following scenarios,
- The Company is unable to pay its debts
- Tribunal orders the Company to be shut down or is of the opinion that the Company is equitable and must be shut down
- When the Company has not filed financial statements or annual return in the preceding five consecutive years
- The Company has acted against the sovereignty and integrity of the state and India, friendly relations with foreign states, public order, decency or morality
- If the Company has been conducted in fraudulent manners or is guilty of fraud or misconduct
Procedure for Private Limited Company Closure
The closing of Private Limited Company is a slow and boring process. The procedure of closing of a Company happens as follows:
- Board Resolution – A board meeting is held where at least two Directors must be present or preferably majority of Directors. The Directors approving the closing of the Company, having cleared all its debts, then pass a resolution.
- General Meeting – Following the board meeting, an issue is passed to call for the general meeting of the Company. The General Meeting Board must pass the closing of the Company resolution by ordinary majority or a special resolution by 3/4th Once the resolution is passed, the closing of the Company commences.
- Creditor Meeting – At least 2/3rd of the creditor value must be of the opinion that the closing of the company is in the best interest of all parties.
- File a notice with Registrar after 10 days of passing of the resolution to appoint a liquidator
- Official circulation – Within 14 days of passing of resolution, notify the Official Gazette and advertise in the newspaper regarding the closing of the Company
- File the certified copies of resolutions and general meeting regarding the closing of the company, within 30 days of the General Meeting
- Final General Meeting – A final meeting to be held to dispose the books and papers of the Company
- Dissolution – Within 14 days of Final General Meeting, file a copy of the accounts and application to dissolute the Company
- Once the tribunal is satisfied with the copies and application, it will pass an order to dissolute the Company within 60 days of receiving the application
- Publish notice – On receiving the order from Tribunal, the appointed liquidator files a copy to the Registrar. The Registrar then publishes a notice that the Private Limited Company is now dissolved, which means closed
At least a year should have passed from the date of incorporation before the Company files for closing to the Registrar of Companies.
A resolution of Directors approving the closing of the Company and the same being declared with the condition that there are no pending debts is a key requirement for filing the voluntary closing of the Company.
Within 7 days of application submission, the Private Limited Company must notify the creditors, shareholders, employees, trustees, and other directors.
If the Company fails to comply with the timelines, a fine or penalty is incurred upon the Directors from starting another Company.
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