winding up of private limited company
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Overview
Winding up of a Private Limited Company refers to the process of closing the company's operations and legally ending its existence. It involves settling the company's debts, distributing its assets among shareholders, and officially dissolving the company. This process can either be voluntary or involuntary, depending on the circumstances.
Advantages
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1. Clearance of Liabilities: Winding up helps in clearing all outstanding liabilities and debts, ensuring no legal repercussions for directors or shareholders.
2. Return of Capital: After debts are paid off, the remaining assets are distributed among the shareholders.
3. Legal Closure: It provides an official and legal closure to the company, which is important for maintaining proper business records.
4. Prevents Ongoing Liabilities: Winding up prevents the company from continuing to accrue liabilities, which could impact shareholders and directors.
Eligibility Criteria
1. Insolvency: If the company is unable to pay its debts, it may be eligible for winding up.
2. Consent of Shareholders: For voluntary winding up, a majority of the shareholders need to approve the decision.
3. No Ongoing Legal Disputes: The company must not be involved in any pending legal proceedings.
4. Compliance with Legal Requirements: All statutory filings and financial obligations should have been met.
Documents Required
1. Board Resolution: For voluntary winding up, a resolution passed by the Board of Directors is required.
2. Shareholder’s Approval: A resolution passed by shareholders for the winding-up decision.
3. Financial Statements: Up-to-date financial statements showing the company's debts and assets
4. Form Submission: Necessary forms to be filed with the Registrar of Companies (RoC), such as Form 101, Form 22, and other documents.
5. Clearance Certificates: From tax authorities or any relevant governmental bodies.
6. Liquidator’s Report: A report from the appointed liquidator summarizing the liquidation process.
Process
1. Board Resolution: The first step involves passing a board resolution to initiate the process.
2. Shareholder Resolution: A special resolution must be passed by the shareholders.
3. Appointment of Liquidator: A liquidator is appointed to handle the winding-up process and distribution of assets.
4. Filing with RoC: Filing of required forms and documents with the Registrar of Companies.
5. Settling Debts: The company’s debts and liabilities are settled.
6. Distribution of Assets: Remaining assets are distributed among shareholders after liabilities are cleared.
7. Dissolution: Once all the processes are complete, the company is formally dissolved, and the RoC updates its records.
Features
1. Voluntary vs. Compulsory: Winding up can either be voluntary (initiated by the company’s members) or compulsory (by a court order).
2. Role of Liquidator: The liquidator takes control of the company, selling assets and settling debts.
3. Dissolution Process: Once the assets are distributed, the company is officially dissolved and ceases to exist as a legal entity.
4. Tax Implications: Winding up can have tax consequences, which must be handled appropriately.
Types
1. Voluntary Winding Up: Initiated by the company’s shareholders and members.
2. Compulsory Winding Up: Ordered by the court, typically in cases of insolvency or severe legal issues.
3. Creditors' Voluntary Winding Up: A type of voluntary winding up when the company is insolvent, and creditors’ involvement is essential.
Frequently Asked Questions:
A company decides to wind up mostly when it is not active, or it is failing to fulfil the business compliances.
A company that does not go for winding up even if it fails to maintain the compliances then has to pay the penalty or fine, and the Director of such Company is debarred from starting a new company.
The companies that can apply for fast track winding up are:
1. In the preceding two years from the date of application, the companies that are not active and have failed to carry on their business, or
2. The companies which are not active or carrying on their business for one year since the day of their incorporation
3. The companies that have no assets or liabilities.
The following is the list of companies that are not eligible for voluntary Winding up:
1. The Company which is incorporated after 2nd November 2018 but has not filed form 20A.
2. The Company has not completed one year since the day of its incorporation.
3. The Company which is having its business transaction in the last 1-2 years, meaning the Company which has ongoing business.
4. The Company whose Director's DIN is deactivated.
5. Such Company whose any director is disqualified.
6. The Company has already received notice from the Registrar of Company to wind up.
7. Such Company which has any pending litigation in its name.
The petition should be advertised in the regional language of that area as well as in the English language.
The Companies (Winding-Up) Rules 2020 is enforced for reducing the burden of the National Company Tribunal as it has enabled the summary procedure for liquidation of the Company's assets.
The Company should fulfil the following obligations before winding up:
1. Aresolution should be passed by the Board of Directors
2. There should not be any ongoing business
3. The directors of the Company should declare that there is no debt pending on Company.
As per the 2020 Rules, the following are the class of companies for the purpose of the summary procedure:
1. The companies accept deposits and have total outstanding deposits up to Rs. 25 lakhs.
2. The companies have total outstanding loans of up to Rs 50 lakhs.
3. The companies having a total turnover of Rs. 50 crores.
4. The companies with total paid-up capital of Rs. 1 crore.
The summary procedure provided by the Companies (Winding-Up) Rules 2020 is that the Company can directly apply to the Central Government for its Winding Up instead of a Tribunal.
