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Closing a business entity, whether a Private Limited Company or a Limited Liability Partnership (LLP), in India involves a structured legal process. The objective is to ensure that the closure is compliant with statutory regulations, avoids future liabilities, and formally ends the existence of the business. This article outlines the key steps, legal provisions, and compliance requirements for closure of Company and an LLP in India, along with answers to frequently asked questions (FAQs).
Closure of a Private Limited Company
The dissolution of a Private Limited Company is governed by the Companies Act, 2013, specifically under Section 248 for voluntary strike-off and Section 271 for compulsory winding up.
- Voluntary Strike-Off (Section 248 of the Companies Act, 2013)
A company that has been inactive for two consecutive years or has not commenced business within one year from its incorporation can apply for voluntary strike-off.
Steps for Voluntary Strike-Off:
Board Resolution:
Pass a board resolution for company closure.
Authorize a director to initiate the strike-off process.
Settlement of Liabilities:
Settle all outstanding dues, including statutory liabilities, taxes, and employee dues.
Special Resolution:
Pass a special resolution by shareholders or obtain consent from 75% of members in terms of paid-up capital.
Application to ROC:
File Form STK-2 with the Registrar of Companies (ROC).
Attach required documents, such as:
Indemnity bond (Form STK-3).
Affidavit (Form STK-4) by directors.
Statement of accounts, certified by a Chartered Accountant.
NOC from tax authorities, if applicable.
Public Notice:
The ROC publishes a notice in the Official Gazette for public objection.
Striking Off:
If no objections arise, the ROC strikes off the company from its register, and the company is dissolved.
- Compulsory Winding Up (Section 271 of the Companies Act, 2013)
A company may be wound up by the National Company Law Tribunal (NCLT) under the following circumstances:
The company is unable to pay its debts.
The company acts against the sovereignty or integrity of India.
Non-filing of financial statements and annual returns for five consecutive years.
The Tribunal deems it just and equitable to wind up the company.
Steps for Compulsory Winding Up:
Petition to NCLT:
File a petition by the company, creditors, ROC, or government authorities.
Appointment of Liquidator:
The Tribunal appoints a liquidator to manage the winding-up process.
Asset Liquidation:
The liquidator settles liabilities and distributes remaining assets to shareholders.
Final Report and Dissolution:
Submit the final report to NCLT, which will issue a dissolution order.
Notification to ROC:
ROC updates the company's status to dissolved.
Closure of a Limited Liability Partnership (LLP)
The closure of LLPs is governed by the Limited Liability Partnership Act, 2008, and the LLP Rules, 2009.
- Voluntary Strike-Off (Rule 37 of the LLP Rules, 2009)
LLPs that have not commenced business or have been inactive for at least one year can apply for strike-off.
Steps for Voluntary Strike-Off:
Consent of Partners:
Obtain written consent from all partners for closure.
Settlement of Liabilities:
Clear all outstanding liabilities and close bank accounts.
Preparation of Documents:
Affidavits and indemnity bonds from all designated partners.
Statement of accounts, certified by a Chartered Accountant.
Latest Income Tax Return acknowledgment.
Filing Form 24:
File Form 24 with the ROC, along with the above documents.
ROC Approval:
ROC verifies the documents and issues a public notice.
If no objections arise, the LLP's name is struck off, and it is dissolved.
- Compulsory Winding Up
An LLP may be wound up by the Tribunal if:
It is unable to pay debts.
It has acted against the sovereignty and integrity of India.
It defaults in filing annual returns for five consecutive years.
Steps for Compulsory Winding Up:
Petition Filing: File a winding-up petition with NCLT.
Appointment of Liquidator: Tribunal appoints a liquidator to settle the affairs.
Asset Liquidation and Settlement: The liquidator settles liabilities and disposes of assets.
Final Dissolution Order: The Tribunal issues a dissolution order after liabilities are cleared.
ROC Notification: The ROC updates the LLP status to dissolved.
Key Documentation Required for Closure
Board/Partner Resolution for closure.
Indemnity bond and affidavit by directors/partners.
Statement of accounts certified by a Chartered Accountant.
Copy of PAN, Aadhar, and incorporation certificate.
Latest Income Tax Return acknowledgment.
No dues certificate from creditors (if applicable).
NOC from tax authorities (if applicable).
Frequently Asked Questions (FAQs)
- Can a company with liabilities apply for strike-off?
No, all liabilities must be settled before applying for strike-off under Section 248 of the Companies Act, 2013.
- How long does it take to close a Private Limited Company?
Typically, it takes 3-6 months, depending on document verification and regulatory approvals.
- Is it mandatory to file pending returns before closure?
Yes, all statutory returns, including Income Tax and GST returns, must be filed before initiating closure.
- Can LLPs close without filing Form 8 and 11?
No, all pending compliance forms must be filed before closure to avoid penalties.
- What is the penalty for late filing of closure forms?
Late filings attract penalties as per the Companies Act, 2013, or LLP Act, 2008.
- Can a company be restored after strike-off?
Yes, a struck-off company can apply for restoration within 20 years from the date of strike-off by filing a petition with NCLT.
- What are the tax implications of company closure?
All pending taxes must be cleared, and a No Objection Certificate (NOC) may be obtained from the tax department.
- Is professional assistance mandatory for closure?
While not mandatory, professional assistance ensures accurate compliance and documentation.
- Can foreign shareholders initiate company closure?
Yes, but they must adhere to Foreign Exchange Management Act (FEMA) regulations.
- Is GST registration cancellation required for closure?
Yes, GST registration must be canceled after settling liabilities and filing final returns.
Conclusion
Dissolving a Private Limited Company or LLP closure procedure in India requires thorough planning, adherence to legal provisions under the Companies Act, 2013, and LLP Act, 2008, and compliance with tax and regulatory obligations. Timely filing of forms like STK-2 for companies and Form 24 for LLPs, along with accurate documentation, is critical for a seamless closure process. Seeking professional guidance can help avoid legal complications and ensure that the closure is compliant with Indian laws.