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How to Close a Business
Company

How to Close a Business

Closing a business is tougher than starting a business. The process of closing a business in India is referred to as Winding Up. At the commencement of Winding Up process, the business ceases to carry out any sort of business activity and the management of the company is transferred from the Director to the freshly appointed ‘liquidator’. Liquidator performs all the necessary tasks to wind up a company like realizing its assets, paying off the debts and distributing the surplus left among the people who are entitled to have it. Dissolution is the last stage of winding up and after this, the company ceases to exist. During the winding-up process the company remains a legal entity with rights, duties, and obligations but after dissolution, the company’s name is struck off the Register of Companies by the Registrar.

 

Modes of Winding Up


Section 270 of the Companies Act, 2013 lays down the modes of winding up and prescribes two methods of closing a company. A company can be wound up either voluntarily or by the National Company Law Tribunal. The term winding up includes winding under the Companies Act and liquidation under the Insolvency Code.

 

Winding up by the Tribunal

The Tribunal is empowered to wind up a company if a petition is put forth before it as per Section 272 of the Companies Act. Section 271(1) of the same Act contains the grounds based on which a company may be wound up and these grounds inter alia include winding up if it is unable to pay debts, has passed special resolution for winding up the company and has acted contrary to the interests of the sovereignty, integrity and security of India. With the coming of the Insolvency and Bankruptcy Code, typically, a company which is unable to pay its debts, resorts to insolvency resolution under the Code. This has made the provisions pertaining to winding up on account of inability to pay debts under the Companies Act, defunct.

 

The petition can be filed by the company, trade creditors, contributors, the government or the registrar of the company and if must be accompanied by the Statement of Affairs prepared by the auditor. Part I of Chapter XX of the Companies Act contains the law governing winding up by tribunal. After petition if the Tribunal is satisfied that there is an apparent case for winding up then it shall direct the company to file objections within 30 days of such order. A liquidator is appointed who supervises the whole process of winding up and then submits a report to the tribunal within sixty days from the order. When the business activity of the company ceases completely then the liquidator files an application before the Tribunal and if the Tribunal is of the opinion that it is reasonable to wind-up the company then it may pass the order of dissolution, the copy of which shall be forwarded to the Registrar by the liquidator within 30 days from the date of order.

 

Voluntary Winding Up

The other mode of winding up a company is voluntary without any intervention of the Company Law Tribunal. Section 304 of the Companies Act lays down the condition in which a company can be wound up voluntarily and they are, firstly, if a resolution is passed in the general meeting to wind-up due to expiry of the period mentioned in Articles of Association or any other reason mentioned in the Articles. Section 59 of the Insolvency and Bankruptcy Code contains the procedure for winding up voluntarily and another law that is relevant in this regard is the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulation, 2016. The first step of this process requires the Director of the company to declare winding up of the company at the general meeting following which a special resolution approving the same has to be passed. Then a meeting with creditors is to be conducted and consent of 2/3rd of the creditors is to be obtained. After the publication of the resolution, a liquidator is appointed and after the activities of the company are absolutely wound up then the liquidator prepares an application of winding up and sends it to NCLT for dissolving such company.

 

Conclusion

The process of winding up is a complicated one and is laden with a number of technicalities. With the introduction of Insolvency and Bankruptcy Code, the law in this regard has become even more complex. It is advised to engage an Insolvency Expert to do the winding-up proceedings.
Things Nobody Told You About Setting up a Private Limited Company
Company

Things Nobody Told You About Setting up a Private Limited Company

A startup founder has a million things on his mind. How to set up an entity and which entity to choose occupies a major part of his initial worries. Informed decisions are the best. Hence, we will tell you things about setting up a Private Limited Company. Private companies have been seen to be a preferred mode for startups, primarily due to investor confidence and the opportunity to raise equity funding. However, they have a high cost of formation and have a complex procedure for setting up. Read on to know things nobody tells you about setting up a Private Limited Company. 

 

 

Requirements for setting up a Private Limited Company

Following are the requirements for setting up a private limited company:-

  1. Members: The minimum number of members are two and the maximum number of members are 200 for setting up a Private Limited Company. If two or more persons are jointly holding shares in a private limited company, then they would be considered as a single member. Also, the persons who are are present or past employees will not be counted in the number of members. 
  2. Memorandum of Association: The Memorandum of Association is the guiding document of a company. It contains the Name of the Company with last words “Private Limited”, details of the Registered Office, objects for which the company was formed and what would be the liability of its members. 
  3. Articles of Association: The Articles of Association shall contain Regulations for management of the Company. It regulates the relations inside the company and between the members. 
  4. Directors: There should be minimum 2 Directors in the case of a Private Limited Company.
  5. Minimum Authorized Capital: A private limited company requires a minimum Authorised capital of INR 1 Lakh. This is the money, the company receives from its shareholders.
     

Steps for setting up a Private Limited Company

The following steps are required to be followed while setting up a private limited company: 

  1. Apply for the Digital Signature Certificate (DSC) of the proposed Directors of the Private Limited Company.
  2. Apply for the Director Identification Number (DIN) of the proposed Directors of the Private Limited Company.
  3. Apply for the availability of names. Make sure to choose a unique name.
  4. File an application for Incorporation of Company with the Registrar within the jurisdiction of the registered office of the company. 
  5. File of Memorandum of Association (MoA) and Articles of Association (AoA).
  6. Apply for PAN and TAN of the Private Limited Company
  7. The Registrar of Companies (RoC) issues Certificate of Incorporation along with PAN and TAN of the Private Limited Company.
  8. Open a Current account on the Private Limited Company’s Name.

The Ministry of Corporate Affairs has now prescribed a default option by the name of Simplified Proforma for Incorporating Company Electronically (SPICe). A Form INC-32 is to be filed through the means of SPICe. Along with this, there is also filing of eMoA (Electronically Memorandum of Association) and eAoA (Electronically Articles of Association. These are in forms INC-33 and INC-34 respectively. 

Those who read this article also consulted a Startup Expert. 

Conclusion

A private limited company is a preferred entity for startups as it is easier to offer equity in return for funding. A private limited company also enables the founders to issue shares to employees and ensure attractive employee benefits and hiring and retention of good talent