Company Closure in India
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Compliance For Company Closure as per Companies Act, 2013
Updated on December 31, 2022 04:39:28 PM
The closure of a company denotes the termination of its operations and is a significant event that may signify strategic decisions made by management to focus on new opportunities or address challenges that cannot be overcome. Although it might seem like a setback or failure, understanding the importance of company closure allows stakeholders to comprehend the decision-making process and plan their next steps effectively.
The Companies Act of 2013 outlines the provisions for company closure, and adhering to these provisions is crucial. The process of company closure involves the liquidation of the company, which is mandatory before the company can be closed. This procedure aims to end business operations due to various reasons, ensuring a structured approach to conclude the company’s life cycle.
Total Cost of Company Closure
Item Fee
— —–
Government Fee ₹10,000/-
Professional Fee (Company Secretary) ₹10,000
Document Processing Fee ₹999
Total Fee for Company Closure ₹20,999
Note: The professional fee is charged by the company secretary, and an additional fee for document processing and auditing (notary and stamp paper) is applicable for the purpose of company closure.
What is the Procedure to Close a Company?
The procedure for winding up or closing a company in India involves two types: voluntary and compulsory winding up.
Voluntary Company Closure Procedure:
1. Board Resolution: The board of directors must pass a resolution for voluntary winding up of the company.
2. Shareholder Approval: Obtain approval from shareholders for the company’s winding up.
3. Creditors’ Consent: Ensure trade creditors consent that they have no objections towards the company’s liquidation.
4. Declaration of Solvency: Prepare a Declaration of Solvency stating the company’s ability to pay off its debts.
5. Assets and Liabilities Report: The appointed liquidator must create a report detailing the company’s assets and liabilities.
6. Application for Liquidation: The liquidator files an application for company closure with the Tribunal.
7. Dissolution Resolution: After document verification, the Tribunal passes a resolution for company dissolution within 60 days of the application.
8. Advertisement and Deregistration: Publish an advertisement in a newspaper and remove the company from the list of registered companies.
Compulsory Company Closure Procedure:
1. Petition Filing: The company files a petition to the Tribunal, presenting the statement of affairs.
2. Liquidator Appointment: Appoint a liquidator to oversee the company closure process.
3. Report Drafting and Approval: The liquidator drafts a report and awaits approval. Once approved, the report is submitted to the Tribunal.
4. ROC Assessment: If the Registrar of Companies (ROC) finds the report satisfactory, they will proceed with the winding process.
5. Striking off from Registered Companies: ROC will remove the company’s name from the list of registered companies.
6. Publication in the Official Gazette: ROC will notify the publication of this report in the Official Gazette of India.
What are the Documents Required for Company Closure?
The mandatory list of documents required for company closure as per the Companies Act, 2013 are:
An Authorised Board Resolution about the closure of the company and appointment of a liquidator.
The Articles of Association of the company, where the liquidation and winding process of the company is mentioned.
A notice for the appointment of a liquidator of the company, which must be signed by the directors.
A detailed list of creditors which will include their contact information and payable debt by the company.
A statement of affairs of the company which will be prepared by the liquidator, mentioning all the assets and liabilities of the company on the date of company closure or winding up of the company.
Final accounts statement prepared by the liquidator from the period of commencement of liquidation process till its completion.
The declaration of solvency, signed by the directors must also be there, which can state that the company is solvent and is able to pay off its debts within a stipulated time period.
Why Close a Company?
There are several reasons that lead to the closure of a company, including:
1. Financial Difficulties: Companies may face financial challenges such as decreasing sales, mounting debts, or an inability to secure funding. If these issues become unsolvable, the company might decide to close down.
2. Market Changes: Markets and industries evolve, and sometimes a company’s products or services become outdated or face intense competition. If a company cannot adapt to market changes or maintain profitability, it may consider closure.
3. Strategic Decisions: A company might make a strategic decision to shut down a specific business unit or division as part of its planning. This could be due to a shift in focus, resource consolidation, or redirecting investments into more promising opportunities.
4. Legal or Regulatory Challenges: Companies can face legal or regulatory issues that hinder their operations. This includes violations, lawsuits, compliance challenges, or changes in rules that make their business model unsustainable.
5. Owner’s Retirement or Personal Reasons: The owner or founders of a company may choose to retire or pursue other personal interests, leading to the decision to close the business. This is common in small or family-owned enterprises.
6. Merger or Acquisition: In some cases, a company may be acquired by another entity or merged with another company. As part of the consolidation process, redundant operations may be closed down to optimize resources and enhance efficiency.
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