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Closure of One Person Company

Closure of One Person Company requires proper legal compliance and documentation. Simplify the winding-up process with Kanakkupillai expert guidance to ensure a hassle-free experience. Our professionals handle all procedures efficiently, ensuring a smooth OPC closure while meeting regulatory requirements.

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Overview of Closure of One Person Company in India

At Kanakkupillai, we understand that running a business comes with its own challenges, and sometimes, despite our best efforts, we need to close our business.

The concept of the One Person Company (OPC) was introduced in The Companies Act of 2013, which allowed a single individual to operate their business as a chairman and a shareholder of the company. This revolutionary change aimed at empowering entrepreneurs who wished to establish a business entity on their own. Prior to this, entrepreneurs had to choose between a sole proprietorship or a private limited company, which required multiple shareholders. There are currently approximately 34,446 OPCs registered in India. An OPC offers entrepreneurs the benefit of limited liability, ensuring that their personal assets remain separated from those of the company.

However, there are instances when closing an OPC becomes necessary, mostly when the company is not carrying any business or when continuing the business is no longer desirable or profitable. The Companies Act 2013 outlines a clear process for the closure of an OPC, enabling entrepreneurs to formally dissolve their businesses. Closing an OPC ensures that shareholders' personal assets are protected and any unresolved matters are properly addressed. The procedure for closing an OPC in India is simple and straightforward, ensuring that all liabilities are settled and the company is efficiently dissolved. This guide will walk you through the step-by-step process and the essential documents required for closing an OPC in India.

What is One Person Company?

Section 2 (62) of The Companies Act, 2013 introduced OPC in India as a company which has only one member. OPC is a type of business entity that allows a single entrepreneur to form a company with limited liability, i.e., the individual’s personal assets are protected from the debt(s) of the company (if it exists). Registering an OPC in India has several benefits like limited liability protection, perpetual succession, easily transferable shares access to investments and funding etc.

Reasons for OPC Closure

Section 248 of the Companies Act 2013 outlines four specific grounds (covered in 3 points below) for striking off a company’s name from the Register of Companies and other reasons are also mentioned below:

Failure to Commence Business

If the company fails to commence its business within one year of incorporation and even after physical verification, the company is not carrying on any business or operations, then it must apply for its closure.

Unable to carry Business

If a company has not carried out any business/operations for two consecutive immediately preceding financial years and has not made any application to obtain the status of a dormant company within such period, then an application for striking off the company’s name can be filed with the RoC.

Failure to Make Declaration

If the company fails to file the necessary declaration under Section 10A of the Companies Act, 2013, within 180 days of its incorporation, that confirms that the subscribers to the memorandum have paid for the shares they agreed to take and, as a result, the company has not commenced any business or operations, and the Registrar may initiate action to remove the company’s name from the register.

Financial Loses

Financial losses and instability are among the most frequent causes of OPC closures. To avoid more financial burden and safeguard personal assets, the business owner may choose to shut down the company if it is continuously losing money, cannot pay its debts, or is experiencing cash flow problems.

Shifting Business

Over time, the market and business strategies of the company may change, and the entrepreneurs might decide to explore different business ideas or merge with another company. If the goals and operations of the OPC no longer align with the entrepreneurs’, closing the company is the best option.

Not Complying with the Regulatory Framework

After registration, OPCs are mandated by law to comply with compliance requirements mentioned in the Companies Act 2013 and Tax Laws. Failure to meet mandatory requirements like filing annual returns and financial statements or holding the annual general meeting (AGM) on time can result in penalties and, in the worst case, lead to ‘forced closure’ by the authorities.

Inability to Raise Capital

OPCs are restricted to only one shareholder, and the limitation can be challenging to raise capital from the market. If the business owner is unable to generate enough money or find new partners to grow the business, it may decide to shut down the OPC.

Low Market Demand

If there is a significant drop in market demand for the products or services provided by the OPC, the company needs to be closed. The drop in demand can be due to various reasons, such as technological advancement, outdated products, intense competition, and changing consumer preferences. If the company is no longer making profits and is unviable in the market, closing the company may be the best option.

Mergers and Acquisitions

In some cases, the owner of the OPC might choose to dissolve the company as a part of a merger or acquisition with another business.

Conversion into a Private Limited Company

If the annual turnover of the OPC exceeds Rs. 2 crores in any financial year, it is mandatory to convert it into a Private Limited Company. The owner of the company may also voluntarily choose to convert it into a Private Limited Company. In such cases, the closure process is seen as a necessary step towards the growth of the business.

Type of Closure for OPC Company

The legal framework governing the closure of an OPC in India is based on the Companies Act of 2013, the Insolvency and Bankruptcy Code of 2016, and the rules laid down by the Ministry of Corporate Affairs (MCA). The closure process can be categorized into two types:

Striking Off (Voluntary Closure)
Winding Up (Involuntary Closure)

1. Striking Off - Voluntary Closure

Striking off is a voluntary process under Section 248 of the Companies Act 2013, where an OPC can apply to have its name removed from the Register of Companies (RoC). The process is used when the company is solvent, i.e., it has no outstanding debts or liabilities. It is simple and less expensive and begins with a Board Resolution to initiate the closure process and apply to the Registrar of Companies (RoC).

2. Winding Up - Involuntary Closure

Winding up is a formal and complex process for closing the OPC. It is used when the company's debts or liabilities are not settled. Winding up can be initiated voluntarily by the company’s members or creditors or involuntarily by a court order.

Voluntary Winding Up: It occurs when the members or shareholders of the company decide to dissolve the company voluntarily. The process of winding up the company can be initiated by the members of the company without the intervention of the court. The process begins with the passing of a special resolution by the members of the company to wind up, and a liquidator is appointed, who is entrusted with the responsibility of selling the company's assets and distributing proceeds to the creditors. The special resolution is filed with the Registrar of Companies (RoC), and the company’s liabilities are settled by the liquidator.
Involuntary Winding Up: The process is initiated when a company is unable to pay its debts, and the court or tribunal orders the dissolution of the company. The process can be initiated either by the creditors or by the Court Order.

Documents Required for OPC Closure

The following documents are required to close an OPC in India:

Board Resolution: A board resolution must be passed by the sole shareholder of the OPC, who will make the decision to close the company and appoint the liquidator (if necessary).
Form STK-2: This is an application for striking off the company and is available on the MCA portal’s website.
Indemnity Bond: An indemnity bond is a document signed by the director or shareholder of the company declaring that the company has no outstanding liabilities or debts.
Affidavit from the Director: An affidavit is sworn by the sole director of the OPC to confirm that there are no pending legal cases or unresolved liabilities in the company. A signed and notarized affidavit has to be filed along with the application.
No Objection from Tax Authorities: It proves that the company has paid all its dues to the tax authorities, including Goods and Services Tax (GST), Income Tax, and any other taxes.
Tax Returns: You need to attach proof of filing the final income tax and GST returns for the last year to the application. Once returns are processed, a ‘Tax Clearance’ certificate must also be requested and attached.
Financial Statements: Financial statements, including balance sheets and profit-and-loss statements, are required to be filed before the application for closure to the RoC to show that there are no pending liabilities on the OPC. The company’s Chartered Accountant (CA) shall sign these statements.
Certificate of Incorporation, Memorandum of Association and Articles of Association may be required.

Step-by-Step Procedure for OPC Closure in India

Step 1: Clear All Outstanding Liabilities

Before applying for closure, make sure that all outstanding financial obligations and liabilities debts are cleared and settled. If any liabilities exist at the time of closure, they must be cleared before initiating the process of closure. The liabilities include:

Filing pending tax returns (Income Tax, GST, etc.)
Settling debts, repayment of loans, and clearing dues with employees and creditors.
Close the bank accounts to ensure there are no pending transactions.

Step 2: Hold a Board Meeting

After clearing all the liabilities, it is mandatory to hold a Board Meeting or meeting of the sole director (if no board exists) and pass a resolution with the support of 2/3 creditors of the OPC. The notice of this Board Resolution shall be submitted to the RoC within 10 days from the approval of the creditors of the company.

Along with the Board Resolution, a declaration stating that the OPC has no debts and liabilities shall be submitted to the RoC. If there are any pending debts, mention in the declaration that repayment of the same shall be made through the company’s assets. The resolution for winding up the company has to be advertised in the Official Gazette and newspaper.

Step 3: Obtain a No Objection Certificate from the Tax Authorities

The next step is to obtain NOCs from tax authorities and creditors (if any).

Step 4: Filing for Striking Off (Form STK-2) for Voluntary Closure

If the OPC is solvent, you can file for striking off the company’s name from the Register of Companies (RoC) under Section 248 of the Companies Act, 2013. You need to:

Prepare and file e-STK-2 form available on the MCA portal. In the form, you need to fill in details of the company, its registration number, and the reason for striking off.
Attach the following documents:
Board Resolution
Affidavit from the Director
Indemnity Bond
NOC from the Authorities
Financial Statements
Statement of Assets and Liabilities

Step 5: Submit Final ITRs

Before the closure of the OPC, submit the final Income Tax Returns for the last financial year. The tax Clearance Certificate shall also be filled out once the final return is filed.

Step 6: Final Certificate of Closure

Once all steps are completed and the RoC accepts the application for striking off, the RoC will issue the Certificate of Closure or Striking-Off Certificate and publish the notice in the Official Gazette about the closure of the company. The companies will then be removed from the RoC register.

Step 7: Final Certificate of Closure

Once all steps are complete, the RoC will issue the Certificate of Closure or Striking-Off Certificate, which formally completes the closure of OPC.

Post Closure Compliance

After the company’s name has been struck off and dissolved, you need to retain its records such as financial statements, tax returns, and other corporate documents like Minutes of Meetings, Shareholder Meeting Minute, Register of members, director, charges, annual returns, Certificate of Incorporation, MoA and AoA of the company, etc. for 8 years.

Winding Up the Company

If there are liabilities pending on the company and the company is unable to pay its debts, then the company shall undergo the winding-up process. The process shall be:

Single Director shall a Board Resolution for winding up a company.
Appoint a liquidator.
File the petition with the National Company Law Tribunal NCLT.
Notify creditors and call for a meeting to discuss the settlement of debts.
Liquidation of assets of the company and settlement of debts
Submission of Final report by the liquidator to the NCLT.

Why Choose Kanakkupillai for OPC Closure Services?

Kanakkupillai is a trusted name in the industry, offering seamless and reliable services for business registration, conversion, and compliance. When you choose Kanakkupillai for closure of your OPC, you benefit from:

Expert Advice: The team of experts at Kanakkupillai guarantees a seamless conversion procedure by providing guidance on procedural, financial, and legal matters.
End-to-End Services: Kanakkupillai takes care of every stage of the closure procedure for you, covering everything from paperwork to filing.
Timely Completion: We guarantee that the closure is finished as soon as feasible, without any interruptions.
Reasonably priced: Kanakkupillai provides all services at cheap prices, making it affordable for new and expanding companies.
Client-Centric Approach: We guarantee that all of your questions are answered and provide personalized services depending on your company's needs.

Frequently Asked Questions

How long does it take to close an OPC in India? +

It usually takes 2-3 months to complete the OPC closure process if all the documents and compliance requirements are in order.

Can I close my OPC if it has outstanding liabilities? +

Yes, but if the OPC is insolvent, you must follow the winding-up process.

Can I convert my OPC into a Private Limited Company instead of closing it? +

Yes, if the OPC meets the eligibility criteria, you can convert it into a Private Limited Company.

Is striking off a simpler option than winding up? +

Yes, striking off is a simpler and less costly process compared to winding up.

Can I close my OPC if it has not been in operation for a year? +

Yes, if the OPC has not carried out any business activities for a year, it can be struck off by the Registrar of Companies.

Will I receive a refund if my OPC closure application is rejected? +

No, the application fees for closure are non-refundable.

What are the consequences if I fail to close my OPC properly? +

Failure to properly close your OPC may lead to penalties and legal complications, including the possibility of the government taking legal action against your company.