The Process Of Closing A Private Limited Company

Last Updated at: Oct 04, 2022
To make the winding up procedure simpler for smaller companies, the MCA has recently notified The Companies (Winding up) Rules, 2020. From now on, certain classes of companies mentioned under Section 361 of the Companies Act, 2013, can wind up without the intervention of the tribunal. These new rules have become effective from 1st April 2020.


Due to several reasons, business owners may decide to closure of private limited company. There are certain steps and procedures to be followed when closing a private limited company. Business owners must abide by certain legal laws and regulations when close company that is registered as a private limited company.

Running a business is never easy. It has its own set of complications and challenges. When the things do not work out properly a business may have to be shut down. There can be many reasons to company closure. There are four ways in which a private limited company can be closed.

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Sell the Company

Selling a Private Limited Company is similar to the voluntary winding up of a Company. By selling the major shares of the company it can be done. It is not exactly a winding up but the stakes are transferred to another individual or entity and the majority shareholders are settled of their stocks and responsibilities.

Mandatory Winding Up

Any company registered under Companies Act, 2013 which did an unlawful act, fraudulent act or even if the company contributed any kind of action in some fraudulent or unlawful activities then such company would be wound up mandatorily by the Tribunal.
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The process of mandatory winding up-

1)   The petition will be filed by the company or any contributors to the company or registrar of the companies or trade creditors of the company or central or state government.

2)   All the documents supplemented by petition will be audited by a practising CA and the view given by the Auditor on the financial statement must be unqualified.

3)   The Petition should be advertised in a daily newspaper at least for 14 days and the advertisement should be in English and regional language of that area.

4)  Form 11 is necessary for the order of liquidation of company. Form 11 should include-

(i) Complete audited books of the accounts up to the date of the order need to be submitted.

(ii) Date, place and time for the company liquidator should be provided.

(iii) Assets and the documents of the assets should be surrendered.

If the tribunal finds all the accounts are in order and all the necessary compliance have been fulfilled, the tribunal would pass the order for dissolving the company within a period 60 days of receiving the claim. After the passing of the order by the tribunal, the registrar will then issue a notice to the Official Gazette affirming that such company is dissolved.

Voluntary Winding Up

Voluntarily winding up of a private limited company requires long procedural compliance to follow. There are certain compulsory requirements that have to be finished to close down a company voluntarily.

The process of voluntary winding up-

1)   As per the Companies Act 2013, Board Resolution is necessary to wind up the company voluntarily. However, the majority of directors must approve for winding up.

2)   Special Resolution is necessary to wind up the company where 3/4th of the total Shareholders must cast their vote in approval of winding up the company.

3)   The approval of the trade creditors is also necessary to wind up the company. Trade Creditors have to give their approval that they don’t have any responsibility if the company gets wound up.

4)   Declaration of Solvency has to be made by the company and the same must be accepted by the trade creditors of the company. Company’s credibility in Declaration of Solvency needs to be shown by the company.

All the above processes shall be presented and filed in the respective form and even after the company gets wound up then also company’s name shall be forbidden for 2 years to be taken by any other company.

Defunct Company closure

As per the Companies Act, 2013, a defunct Company is a company which has gained the position of a Dormant Company. The government provides some relief to such defunct or dormant company because there are no financial transactions that are carried out by the dormant companies.

The process for winding up a defunct company-

A Defunct or Dormant Company can be wind up with an advance process which requires the submission of the STK-2 form. Hence, Form STK-2 is necessary in order to wind up a defunct company. The form STK-2 needs to be filled by the Registrar of Companies and the same needs to be duly signed by the director of the company approved by its board to do so.

So, these are the four processes by which a private limited company can be closed.

The procedure for closing a private limited company is clearly explained above. The procedure varies based on the reason for closing the company. A clear understanding of the procedure can help to complete the closure process quickly without any legal issues.

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