Winding up of a Company

The winding up of a company or closure of company is a complex process that should only be undertaken with the help of an experienced professional. However, before winding up of a company all due must should be cleared and all compliances would be complete. If you are considering winding up your company, it is important to speak to an experienced professional to discuss your options. Our Team can help you to ensure that the process is carried out in a timely and efficient manner, and that your interests are protected.

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Winding up of a Company: Introduction

Winding up a company is the process of bringing its existence to an end. It involves selling off company assets, paying off debts, and distributing any remaining funds or assets among shareholders. The decision to wind up a company can be voluntary or involuntary, and it’s important to follow the legal procedures to avoid any complications. Companies in India wind up for various reasons, including financial instability, business restructuring, or the completion of a specific project. Economic downturns, insurmountable debts, and operational challenges can also trigger the winding-up process.

What is Winding up?

Winding up is the process of closing or dissolving a company and distributing its assets to its creditors and shareholders. There are two main types of winding up: compulsory winding up and voluntary winding up.

1. Voluntary Winding Up of a Company:

This occurs when the shareholders or owners of a company decide to voluntarily close it down because they believe it can no longer operate profitably or for other reasons. It is initiated by passing a resolution at a shareholders’ meeting.

2.Compulsory Winding Up of a Company:

This is a court-ordered process typically initiated by a creditor or a regulatory authority when a company cannot meet its financial obligations, is insolvent, or has violated certain laws or regulations.

Legal Provisions in the Companies Act, 2013 for Company Closure

Section 248 gives power to the registrar of companies to strike off the name of a company in several situations; the powers of the ROC can be invoked by a company also for its striking off by filing an STK-2 application to the ROC. Here are the situations under which a company can make an application for its closure

  • Section 248 (1) A – When company failed to commence its business operation with one year of its incorporation
  • Section 248 (1) C – A company that started its business has become defunct or inactive, and such a company has been inactive for the past two financial years.
  • Section 248 (1) D – The MOA subscribers have not paid the share capital within 180 days of the company incorporation. It means that the company just got registered, and its promoter shareholder contributes no capital.

Company Winding up Fees

Basic Package

  • Eligibility check and Due diligence on ROC Filing
  • Finalization of Account
  • Memorandum of Association
  • Drafting of Affidavits & Indemnity Bond
  • Filing Form STK-2 To ROC

Standard Package

  • Basic Package +
  • Surrender of PAN
  • Surrender of TAN
  • GST Surrender
  • GST Final Return

Stamp Paper & Notary

All the company directors have to file an affidavit and indemnity bond prepared on the appropriate value of the Non-Judicial Stamp paper. The affidavits and the indemnity bonds are required to be witnessed/attested by a Notary Public.
The stamp duty may differ from state to state; hence you should check the appropriate stamp paper value from the local vendors; generally, Rs 100 stamp paper is applicable for indemnity bond and Rs. 50-100 is applicable on affidavits.
The Notary attestation is an activity where the deponent of the affidavit of the person making the indemnity bond signs in the presence of the Notary. Hence, you should take the affidavits and indemnity bond after purchasing the stamp paper to the local Notary’s office for attestation.

Documents require for Company Winding Up

  • All ITR and Returns Filed with ROC
  • Board Resolution Authorising the Closure
  • Affidavit from all the Directors
  • Indemnity Bond from all the Directors
  • Consent of 75% of Shareholder
  • Bank Closure Statement
  • CA Certified Statement of Accounts
  • Identity and Current Address Proof of partners

Checklist for filing STK-2 Application for Company Winding up

  1. Eligibility Check –
    The company must be defunct or inactive under section 248; there are three situations in which a defunct or inactive company can be struck off; check the appropriate section under which the application is to be filed.
  2. Shareholder Consent –
    The company can file the STK-2 application only when the shareholders of the company adopt a special resolution. A minimum of 75% shareholders vote is necessary for passing a special resolution
  3. Pay all Government Dues –
    Before the decision to close the company is made, ensure that all government dues such as GST, Income Tax, PF, ESIC or any other company’s liability towards the government are fully paid.
  4. Close Bank Accounts –
    The company’s bank accounts need to be closed, and you should obtain a complete bank statement and the Bank Closure letter from the banker. These documents are filed along with STK-2 Form.
  5. No Assets or Liabilities –
    Before making the STK-2 application ensure that there is no assets or liabilities in the company; a statement of the assets and liabilities are filed with the STK-2 form after attestation with a Practicing Chartered Accountant
  6. No Litigation –
    There should not be any pending litigation for the applicant company with the state government, central government, or agencies. Also, check that no Income Tax or GST Assessment is pending.
  7. CA Certification
    A Chartered Accountant must attest to the Statement of Accounts showing NIL assets and liabilities in practice. The date of the statement should be within 30 days on which Form 24 is being filed.
  8. Check DIN & DSC Status – 
    Every year DIR-3(KYC) must be filed to keep the DIN active; check the DIN status; if the KYC has not been filed, Please do file the DIN KYC. As the application for striking off the company is filed using Digital Signature, check if the DSC is valid for the partners; if not, Go for DSC Renewal.

Process of winding up of a company

Step 1 - Calling of EGM of the shareholders

To file the application in STK-2 Form for Company Closure to the ROC, a meeting of the company’s shareholders must be called in to decide about the closure with at least 75% voting rights.

Step 2- Bank A/c Closure & Prepare Financial Statement

The bank accounts of the company must be closed, and a certificate from the banker is needed. Prepare a financial statement with Nil Assets and Liabilities, A Practicing CA or Auditor shall certify it.

Step 3 - Affidavit & Indemnity Bond of All Directors

All directors and shareholders have to swear an affidavit that all information and documents being filed are true and correct and an indemnity bond that the directors shall pay in person if any liability comes up.

Step 4 - Filing of STK-2 Form

Check that the company has filed all pending ITR & ROC Return to the ROC. The application for closure of the company filed online with a digital signature in Form STK-2 with the government fee of Rs. 10,000/-

FAQs On Winding Up a Company in India

Can a company reverse the winding-up process?

Yes, if the winding-up process hasn’t been completed, a company can reverse it by passing a resolution to that effect. However, it’s essential to consult legal experts to understand the implications.

What happens to employees during the winding-up process?

Employees’ rights are protected during the winding-up process. Unpaid wages, compensation, and other dues are considered priorities and must be settled before other debts.

How long does the winding-up process typically take?

The duration of the winding-up process varies depending on factors such as the complexity of the company’s affairs and legal procedures. It can range from several months to a few years.

Can a company continue operations while undergoing winding up?

During the winding-up process, the company’s operations cease. However, if it’s in the best interest of creditors and shareholders, the Tribunal may allow limited operations.

What happens to the company's assets after winding up?

After settling debts and liabilities, the remaining assets are distributed among shareholders according to their shareholding. If any assets remain, they are transferred to the government.

Contact us for Company winding up

The winding up of a company is a complex process that should only be undertaken with the help of an experienced professional. However, there are some important steps that you can take to get the process started and to protect your interests.

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