What is Closing or Winding up of a Company?

  • Setindiabiz Team
  • May 5, 2023
winding up a Company
Winding up a company which is inactive or when there is no reason as to why it should exist on the register of the companies at ROC is always the right decision. As continuing with a sick company is always a burden for the stakeholders of the company. No matter, where there is any transaction or not, if the company is active you may be called upon by your CA to meet necessary compliances, of which some are monthly in nature, some is quarterly and some every year.
The compliances are not free and you need to pay your consultant a fee to meet the regulatory requirement or in case you chose not to comply then you are in a bigger mess as the penalty and fines are going to make you crazy.
Hence the companies which you no longer need must be closed to save on the unnecessary cost of Compliance, for freedom from the burden of getting books audited every year and filing of ITR with NIL Particulars. Continuing with a company for no purpose will result in an incremental cost of compliance, and in case the Annual Returns and ITR is not filed then there is always a risk of penalty or additional fee.
The reasons for closure could be many; however, the method by which it can be closed depends on many factors. We ask you to reach us at help@setindiabiz.com with the brief background of the company so that we can offer our free of charge and no obligation preliminary assessment as to how your company can be closed easily with less fuss.
The Companies Act, 2013 prescribes certain grounds on which ROC on its own or on an application made by the company in Form STK-2 can strike off the name of the company from the register of companies, which every ROC maintains.

These grounds are as under

  • Where the company did not it’s business within one year of its registration with the ROC
  • That the company has been inoperative for the past two financial year
  • The company did not obtain the Certificate of Commencement of Business
  • That upon physical inspection, the company was not found functional at its registered address.
If your company falls under any of the categories listed above then, it can be closed by filing a Form STK-2, where the financial statement of the company need to be attached apart from affidavits and indemnity bond from each director and shareholders of the company. The government filing fee is Rs. 5000 to file the STK-2 Form.
In any other case where the above-mentioned conditions are not fulfilled, then the company can only be closed by making an application before the NCLT (National Company Law Tribunal) under the IBC 2016. The process of NCLT is lengthy and costly which most of the failed startup will find burdensome.

What are the common reasons for the Closing of the Company?

  1. There is no point in continuing with a failed venture or a business which is no longer active.
  2. The company did not start the operations
  3. Completion of Project
  4. Regulatory hurdles hinder the functioning
  5. Recurring losses
  6. The death of crucial Managerial Person
  7. A dispute between promoters of the Company
  8. Inability to pay debts of the company
  9. New attractive business opportunities
So what are you waiting for, take the first step to close the company which you no longer need and enjoy following benefits immediately
  1. FREE FROM COMPLIANCE BURDEN: There are specific legal compliance that needs to be done for a company even if the Company does not do any business or which is inactive. There is no relaxation from filing TDS return, GST Return, Filing of ITR, Annual Return, and filing of the Balance Sheet with the Registrar of Companies or tax authorities.
  2. SAVE MONEY ON COMPLIANCE: As discussed in the previous point, even if the company does not do business, it is required to file various returns under the law. There is a substantial cost regarding the professional fee for doing the compliances. Closing an inactive Company is always a wise decision which will ultimately result in saving money in the long-term.
  3. MOVE ON IN LIFE: A business starts with the hope of making it big, but everything planned need not meet the same fate. Business decisions do go wrong, Hence in case the plans are not going right, or the team which started the journey together does not seem to be in sync, its always better to wind up the company and move on.

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