How to Close a Private Limited Company

Running a business comes with challenges, and sometimes, circumstances require shutting it down. There can be several reasons for closing or winding up a company. Here are four ways to close a private limited company:

1. Selling the Company

Selling a private limited company is a form of voluntary winding up. This involves transferring the majority shareholding to another individual or entity. Technically, this is not an actual winding up, but rather a transfer of ownership. The existing shareholders sell their stakes, relinquishing their responsibilities.

2. Compulsory Winding Up

A company registered under the Companies Act in India can be compulsorily wound up by the Tribunal if it has engaged in unlawful or fraudulent activities.

Steps in Compulsory Winding Up:

1. Filing a Petition

   • The petition can be filed by:

     • The Company itself

     • The Trade Creditors of the Company

     • Any contributory or group of contributors

     • The Central or State Government

     • The Registrar of Companies

   • The petition must be in Form WIN 1 or WIN 2, submitted in triplicate with an affidavit in Form WIN 3.

2. Statement of Affairs

   • The statement of affairs must be audited by a practicing Chartered Accountant.

   • The financial statements must have an unqualified opinion from the auditor.

   • The statement should be in Form WIN 4, verified by an affidavit in Form WIN 5.

3. Advertisement for 14 Days

   • The petition must be advertised in a daily newspaper for at least 14 days.

   • The advertisement should be in both English and the regional language of the company’s location.

   • The format for the advertisement is in Form WIN 6.

4. Tribunal Proceedings

   • The Tribunal will hear the petition and review objections and replies.

   • A provisional liquidator may be appointed via Form WIN 8.

   • If the Tribunal orders the winding up, it will issue Form WIN 11.

5. Liquidation Process

   • The company must submit its audited books of accounts.

   • The appointed liquidator will take custody of all assets and documents.

   • Within 60 days, the liquidator must submit a report to the Tribunal.

   • If satisfied, the Tribunal will pass an order for dissolution.

   • Within 30 days, the liquidator must forward the order to the Registrar.

   • Once the Tribunal is satisfied that all legal requirements are met, it will pass the final order for dissolution within 60 days. The Registrar will then publish a notice in the Official Gazette stating the company is dissolved.

3. Voluntary Winding Up

A company can voluntarily wind up by following a legal process. This can occur in the following situations:

• The company passes a resolution in its general meeting upon reaching its intended duration or upon the occurrence of a predefined event.

• A special resolution (approved by at least 75% of shareholders) is passed for voluntary winding up.

• A company liquidator must be appointed in the same meeting and confirmed by a majority of creditors (in terms of value).

Steps for Voluntary Winding Up:

1. Passing a Resolution

   • The majority of directors must agree to the winding up.

2. Approval from Trade Creditors

   • Trade creditors must approve and confirm that they have no objections to the company being wound up.

3. Declaration of Solvency

   • The company must file a Declaration of Solvency to prove its ability to pay off debts.

   • The declaration must be approved by trade creditors.

4. Liquidation Process

   • The appointed liquidator will oversee the process and prepare a report detailing assets, liabilities, and the overall status of the company.

   • The report will be presented at a general meeting for approval.

   • A resolution for dissolution must be passed, and final accounts should be sent to the Registrar of Companies (ROC).

5. Application to Tribunal

   • The liquidator must apply to the Tribunal for an official dissolution order.

   • If satisfied, the Tribunal will pass a dissolution order within 60 days.

   • A copy of this order must be filed with the ROC.

6. Post-Winding Up Restrictions

   • Even after winding up, the company's name cannot be used by any other applicant for two years.

The procedure and necessary forms for voluntary winding up are detailed in the Companies (Winding up) Rules, 2020.

4. Defunct Company Winding Up

A Defunct Company (Dormant Company) is one that has ceased financial transactions and is inactive. The Companies Act, 2013 provides a simplified process to wind up such companies.

Fast-Track Winding Up:

• A defunct company can be wound up using Form STK-2, which must be submitted to the ROC.

• The form must be signed by the director authorized by the board.

Eligibility for Fast-Track Exit:

• The company must have no assets and liabilities.

• It must not have commenced business since incorporation or must have remained inactive for at least one year before applying under the Fast Track Exit (FTE) Scheme.

By following the appropriate method based on the company’s situation, business owners can ensure a smooth and legally compliant closure of their private limited company.