If you are a member or owner of a private limited company in India that needs to be closed down for some reason then, you certainly need to follow a set procedure for doing the same as prescribed by Companies Act. The decision of closing down a private limited company can be due to any reason such as insolvency, completion of project for which it was established or on the demand of investors of the same company.
No matter what the reason is, closing down of a private company can be done in 3 different ways as listed below:
People often consider the act of closing/shutting down a company as something bad or unacceptable which is simply a misconception. Of course, most of the companies choose to close down their business due to several solvency and legal issues but there are a number of companies that undertake this tedious process for generation of cash surplus which can be invested into some other profitable venture. So, while the pro of closing down a private company is generation of huge amount of cash, its cons would include the complication and tediousness of process that needs to be completed in order to shut down a company.
Procedure under voluntary winding up
If the members of a private limited company voluntarily take a decision that they no longer want to run the company then, they need to pass a special resolution following which, the notice of such resolution needs to be advertized in Official Gazette. The company should cease to conduct its business activities from the date of passing such resolution. The Directors of the company then need to draft a declaration of solvency stating that they would pay their debts in full within a period not exceeding 3 years. Such declaration is filed with the Registrar of Companies within a period of 5 weeks following which an official liquidator is appointed by the members of the company, who undertakes the duty of liquidating assets of the company and paying of all the dues to creditors.
There is all likelihood that the owners of a private limited company don’t want to follow the above stated cumbersome procedure for closing down their company, under which situation they can opt for Easy Exit Scheme introduced by Government of India for easy and simplified winding up of a Private Company.
In this case, the board of the company needs to pass a resolution, an application of which needs to be submitted to ROC along with an affidavit that the company has no assets and liabilities and is not carrying any sort of business activities. Audited financial statements pertaining to previous financial years of such company need to be submitted as well along with the application. The name of such company shall be struck off from Register of Companies if the Registrar is satisfied that the request of closing down the company is genuine, thereby declaring it as defunct.
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