Closure of Private Limited Company A Detailed Guide

Running a business is not always a smooth journey. At times, business owners might reach a point where continuing operations of a private limited company is no longer feasible or necessary.

Why Close a Private Limited Company?
There could be multiple reasons behind the decision to shut down a private limited company. It might be due to financial losses, lack of business opportunities, non-operational status, completion of the business purpose, or simply because the promoters no longer wish to continue.

Modes of Closing a Private Limited Company
There are mainly three ways to close a private limited company:

- Strike Off under Section 248 of the Companies Act, 2013
This is the most commonly used and easiest method, suitable for companies that have not been operational for the past two financial years or have not commenced business after incorporation.

Under Section 248(2), the company can voluntarily apply for strike-off by filing Form STK-2 to the Registrar of Companies (ROC), subject to the following conditions:

The company has no liabilities.

The company has not carried out any business activities.

All statutory filings and compliance up to the date of closure are completed.

Before filing, the company must extinguish all liabilities and obtain consent from shareholders via a special resolution.

Key Documents Required:

Indemnity Bond (Form STK-3)

Affidavit by directors (Form STK-4)

Statement of Accounts (certified by a CA)

Board and Shareholder Resolutions

PAN card and Aadhaar of directors

Applicable Rule: Rule 4 of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

- Voluntary Liquidation under Section 304 of the Companies Act, 2013
If the company has assets and liabilities and wishes to shut down voluntarily, it must follow the process of voluntary liquidation.

Under Section 304, members must pass a special resolution and appoint a liquidator. The process involves:

Clearing debts,

Preparing a declaration of solvency,

Winding up the assets,

Distributing any remaining assets to shareholders.

This is a time-consuming and relatively expensive process but is mandatory if the company is not eligible for strike-off.

- Compulsory Winding Up by the Tribunal (NCLT) – Section 271
This mode is initiated by the National Company Law Tribunal (NCLT) and usually applies in cases of:

Fraud,

Mismanagement,

Insolvency,

Just and equitable grounds.

The NCLT may order compulsory winding up based on a petition filed by creditors, ROC, or the central government. This process is more complex and lengthy and is typically applicable in cases involving legal disputes or investigations.

Step-by-Step Procedure for Strike-Off under Section 248 (Most Common Route)
Board Meeting: The directors must conduct a board meeting to approve the closure and authorize filing with the ROC.

Clear Liabilities: Ensure all dues (taxes, creditors, statutory payments) are cleared.

Special Resolution: Conduct an Extra-Ordinary General Meeting (EGM) to pass a special resolution with the consent of at least 75% of shareholders.

Filing Form MGT-14: File the resolution with the ROC.

Prepare Documents: Get affidavits, indemnity bonds, financial statements, and director identification proofs.

File STK-2: Submit the application along with all supporting documents and a fee of ₹10,000.

ROC Verification: The ROC will review the documents and may issue a public notice inviting objections.

Striking Off: If no objections are raised, the ROC will remove the name of the company from the register and issue a Notice in Official Gazette.

Important Points to Remember
A company with pending legal proceedings, dues, or ongoing operations cannot be struck off.

ROC may suo-moto strike off a company if it fails to file statutory returns for two consecutive years.

Closure does not eliminate past liabilities or penalties of the directors.

FAQs on Closure of Private Limited Company
- Can I close a company without filing annual returns?
No. You must file all overdue returns and clear any penalties before applying for strike-off.

- How long does it take to close a company through strike-off?
It usually takes 3 to 6 months, depending on ROC processing and documentation.

- Is it necessary to file income tax returns before closure?
Yes. You must file all pending ITRs and obtain a No Objection Certificate (NOC) from the Income Tax Department in some cases.

- Can a dormant company be closed?
Yes. A dormant or inactive company can apply for strike-off under Section 248(2), provided it has no liabilities.

- What is the fee for STK-2 filing?
As per current rules, the government fee is ₹10,000.

- Can creditors object to strike-off?
Yes. Creditors can object to strike-off within the notice period. Therefore, it’s advisable to settle all dues before applying.

- Is the PAN of the company also cancelled after strike-off?
No. PAN remains in the record of the Income Tax Department, but the company becomes non-functional for legal purposes.

Conclusion
Closing a private limited company in India must be done legally to avoid future complications. The strike-off process under Section 248(2) is the most convenient for companies that are inactive and debt-free. However, companies with assets or liabilities must go through the voluntary liquidation process, while those involved in legal disputes may be wound up by the NCLT.