Winding Up - Company
Company winding up is a legal process for closing an inactive or dormant company by “striking off” its name from the register. This is done through MCA compliance, primarily by filing Form STK-2 for a fast track exit.
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Winding Up Of Company
Company winding up, also known as company liquidation, is the formal legal process of closing down a business. This procedure involves selling off the company’s assets, settling all debts with the proceeds, and, if a surplus remains, distributing it to the shareholders. The goal is to ensure a final, orderly, and legal company dissolution.
Modes of Company Winding Up
A company can be wound up in one of two ways:
1. Voluntary Winding Up
This process is initiated by the company’s members (shareholders). It is typically used for a solvent company that can pay off all its debts. The shareholders pass a special resolution to wind up the company and appoint a liquidator to manage the process. This method allows for a quicker, more streamlined closure without court intervention.
2. Compulsory Winding Up
A tribunal, such as the National Company Law Tribunal (NCLT), orders this type of winding up. It is initiated by a petition from a creditor, shareholder, or the company itself. The NCLT may order the compulsory winding up if the company is unable to pay its debts, has engaged in illegal activities, or has failed to file its annual returns for five consecutive years. An official liquidator is then appointed by the court.
The Voluntary Winding Up Process
The voluntary winding up process involves these key steps:
- Declaration of Solvency: The majority of directors must sign a declaration, supported by an affidavit, stating the company’s ability to pay off all its debts within a specified period. This declaration must be accompanied by audited financial statements.
- Special Resolution: A special resolution is passed by the company’s shareholders at an Extraordinary General Meeting (EGM) to approve the company dissolution and appoint a liquidator.
- Filing with ROC: The company must file the resolution with the Registrar of Companies (ROC) within the prescribed time limit.
- Appointment of Liquidator: The liquidator takes charge of the company’s affairs, liquidating its assets, settling all creditor claims, and preparing a final report.
- Final Meeting & Dissolution: After all debts are paid and remaining funds are distributed, the liquidator holds a final meeting of the members to present the final accounts. The company is then dissolved and its name is removed from the ROC’s register.
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Frequestly asked questions ( FAQ )
Winding Up (or Liquidation) is the legal process that brings a company’s existence to an end. This procedure involves:
Stopping the company’s business operations.
Selling off all assets.
Settling all debts (liabilities) with creditors.
Distributing any remaining surplus to shareholders. The ultimate goal is to achieve Company Dissolution, where the company’s name is formally removed from the Registrar of Companies (ROC).
A company can be wound up in one of two ways:
Voluntary Winding Up: Initiated by the company’s shareholders (members). This method is typically used for a solvent company that is able to pay all its debts. It involves passing a Special Resolution and appointing a Liquidator without court intervention.
Compulsory Winding Up: Initiated by an order from the National Company Law Tribunal (NCLT), usually following a petition from a creditor, shareholder, or the company itself. This is often required if the company is unable to pay its debts or fails to file statutory returns for five consecutive years.
For a dormant or inactive company (one that has ceased commercial operations and has minimal or no assets/liabilities), the most streamlined way to close is through Striking Off (Fast Track Exit).
The company must typically file Form STK-2 with the Registrar of Companies (ROC) to apply for the removal of its name from the register.
The initial key step is the Declaration of Solvency.
A majority of the directors must sign a declaration, supported by an affidavit, confirming that the company can pay off all its debts within a specified period.
This declaration must be accompanied by the company’s audited financial statements.
During liquidation, an appointed professional, known as the Liquidator, takes charge of the company’s affairs. The Liquidator’s responsibilities include:
Liquidating (selling) the company’s assets.
Settling all claims and paying off creditors.
Preparing periodic and final reports.
After the Liquidator sells all assets, settles all debts, distributes any surplus, and holds a final meeting of the members, the Liquidator files the final accounts with the ROC. The ROC then officially passes an order for the dissolution of the company, and its name is removed from the register.