Close the Pvt Ltd Company

An Overview of the Closing of a Company

A company can decide to shut its operation for several reasons, including a refusal to operate by the partners, the company’s insolvency, etc. In such a condition, if the company decides to sell its assets, that’s called “Liquidation of the Company. ” Generally, a company decides to sell its assets if they are in debt or has huge liabilities, and they sell assets and repay their debts. In case of bankruptcy, a company can also decide to sell its assets and pay the creditors. The remaining balance is then distributed among the shareholders of the company.

Things to Do before the liquidation process

• The board of directors must approve the liquidation decision in a board meeting.
• Liquidation cannot proceed until a professional Liquidator is appointed with the task.
• The Income Tax Department should arrange a NOC.
• Before initiating the insolvency process, a statement must be conveyed to the Insolvency and Bankruptcy Board of India (IBBI) within seven days from the decision’s approval date.
• An official gazette and an English and local newspaper must announce the insolvency within 14 days of the approval date to make the general public aware of the situation.
• There’s a 12-month window for the liquidation process; it should be completed within that time.

Documents Required

• Proof regarding the approval of the presented resolution by 3/4th of the board members
• The latest statement of accounts with all assets and liabilities mentioned and audited by a Chartered Accountant
• Company’s PAN Card
• Company’s Bank Account closure certificate
• The directors of the company must notarize an indemnity bond.
• An application to remove the company name

Benefits

• All lease agreements will be cancelled: The liquidation process terminates all lease terms and conditions if a company or entity has entered a lease for a prescribed period. A penalty will be deducted from the sale of assets if it needs to be paid.
• Dodging any legal move against the company: If the directors voluntarily decide on the resolution, The insolvency decision is taken by the directors voluntarily and will not cause any legal complications taken by the court. This will ensure the opportunity for all the directors to focus on different business operations and grab opportunities instead of getting involved in any legal matter.
• Advantages for creditors: If a company has been failing to repay the creditors for a prolonged period, the creditors can get their money back with the liquidation process in full.
• Free from debts: The liquidation process provides enough funds to repay the debtors; this will help the company owners to clear all liabilities
• Comparingly low cost charged for liquidation: There are charges deducted when selling the assets; this makes the liquidation process comparatively cheaper.

Modes of Winding Up of a Company

There are two ways to wind up a company. They are:

• To initiate a voluntary winding up, a special resolution or a resolution taken at a general body meeting is required. Any violation of the Memorandum of Association (MOA) can lead to the winding up of the business. Similarly, a company can be wound up if it lacks financial resources or cannot pay its debts. In order to sell the assets or transfer stakes to another entity, the directors must pass a resolution.
• Compulsory winding up: During a board meeting, the directors can propose a court intervention for the mandatory winding up of a company on the order of a court.

The company must also be wound up compulsorily if any official of the company files a court or tribunal petition or if it engages in any fraudulent/unlawful activities.

Frequently Asked Questions