Closure of a Company
Every company is incorporated on the principle of ‘Going Concern’. However, sometimes circumstances may arise which make it difficult for company to function thus closure or dissolution becomes the right option to avoid compliances and penalties against non-compliances.
Shutting down of a company is a challenging task because company’s name cannot be removed from the register of companies until and unless either the company applies for it or is processed under respective law. Companies Act, 2013 has prescribed various grounds for closure of a company and the following are the major reasons for company closure –
- Company has failed to start its business within one year from the date of its incorporation
- Company is not carrying or operating any kind of business for the duration of 2 immediately preceding financial year
- Number of members has reduced below the statutory limit
- Tribunal is of opinion that it is just and equitable to wind up the company
- Company is not able to pay its debts
There are majorly two methods for closure of a company
A company can voluntarily apply for eliminating its name from the register or for winding up. And a company can compulsorily be struck down or wound up by the ROC or Tribunal respectively under any prescribed circumstances. There should not be any dues and litigations pending against the company or the Directors before filling application for striking off or winding up.
Frequently Asked Questions (FAQs)
Winding up of a company is a process of closure of company by which company’s life is ended and all of its assets are disposed of to pay off the company’s liabilities.
There are two modes of Winding-up of Company-
- Voluntary Winding Up
- Compulsory Winding Up
When a company’s shareholders mutually agree to wind up the affairs of the company by passing a special resolution thereof is known as Voluntary Winding up. This is why it is also called as self-imposed Winding up.
When a Company is legally forced to wind up its affairs either by the order of National Company Law Tribunal or by the order of Court then it is known as Compulsory Winding up of a company. In case of Compulsory Winding up, the tribunal or court asks the company to appoint an official liquidator of the company who shall complete the winding up process.