When a company is registered, there are some compliance requirements that have to be met irrespective of how the company is running. So, sometimes it is wise to cancel the registration when the company is constantly at loss.
Undoubtedly, running and managing a business is an exasperating task. Anyone who starts a business will have an idea and plan to implement the same. But, when there is an unplanned incident that leads to loss, the business might have to be closed due to various reasons. So, here you will get to know about cancellation of company registration. Once a company is registered, many compliance requirements need to be met, and there is an equal expense to cater. There would be no point in having additional costs for a company that is not functional and that doesn’t generate the expected revenue. Therefore, it would be in the best interest of the business for everyone to cancel company registration.
Previously, closing down a Private limited company was a tedious task that included a lot of procedures but things have changed for the good now and the process is much quicker.
There are primarily two options for companies to cancellation of company registration.
Option 1: Fast Track Exit (FTE) Mode
This mode lets you close the company rapidly, even a company that is defunct can apply for this same mode of closing.
(A defunct company is a company that has nil assets, nil liability, and has initiated no kind of business or activity since its incorporation or has not conducted any business operations since the last year.)
This process comes under Section 560, of the Companies Act, 1956.
- To shut down a company under FTE, one can apply through the Form (FTE) that is available on the MCA website: https://www.mca.gov.in/mcafoportal/showCheckCompanyName.do. An authorised director should download and digitally sign the form. There will be an application fee for this process.
Likewise, RoC can also strike off any defunct company if there is a reasonable cause. Although, before passing any decision a chance of being heard must be given to the defunct company by following the due procedure u/s 560.
- On receiving the application, the Registrar would display the name of the company on its website for a specified time of 30 days, as a notice indication to anyone who may have an objection to the removal/striking off the name of the company.
- After a period of 30 days, the Registrar will issue a certificate for the closure of the company mentioning that it strikes its name off from the register of companies it maintains.
Required Documentation
Below is a list of documents that require to be attached with the Form FTE:
1. Approval letter from the Board of Directors for the closure of the cancellation of company registration. It requires prior approval from the BOD to take the above step.
All the bank accounts connected with the company, and registrations with the government. authorities should be closed/canceled before applying for the closure process.
2. Upon the board resolution being passed, all the directors of the company should provide an affidavit on a stamp paper, notarised copy, and individually stating the below-mentioned points:
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- The directors vow that they are the current directors of the company who are applying for closure
- The company has closed all the bank accounts that exist in the company’s name
- The disclosure that the company has nil assets and liability
- They have not involved the company in any business work or transactions for the past year
- The valid reasons for not having a functional business
- Stating that the company has no legal dues as of the date of declaration and that there are no litigations pending before any court of law or against any other company.
3. After that, all the directors of the company should execute an Indemnity Bond which should be witnessed by two individuals on a stamp paper, and agree to do the below:
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- To indemnify any individual for any losses that may take place to strike off the name of the company
- Further, to pay and settle all the legal claims that may occur in the future after the striking of the name of the company
- To resolve all the legal claims and liabilities that may have not come to our notice till this point.
Option 2: The Dormant Status
This mode is appropriate when you have registered a company for a future project. A dormant company is mainly inactive and has the below-mentioned status:
- No functional operation or business
- No major financial transactions have taken place
- Not filled financial statements and annual returns
It is helpful to apply for ‘dormant status’ as it reduces the costs of maintaining such a company. Such companies get exempt from including financial statements, reduce compliance for holding a meeting every quarter and expect to hold only two meetings yearly, and need not rotate the auditors. It is very important to note that a company can have this status for only five years.
Conclusion
There are extensive details to cater to while closing a company or cancellation of company registration. Be stress-free and let our experts advisors at Vakilsearch guide you through every step.
Once a business or organization is registered, numerous compliance requirements have to be met. But, when it comes to cancelling the registration, it has to be in the business’s best interest.
