Winding Up of a Company in India

What Is Liquidation of a Company? - Overview

Liquidation, expressed simply, is the process through which a business ends its operations. The business may opt to shut down for a number of reasons, such as an unwillingness to carry on with business as usual, insolvency, and so on. Liquidation of a company refers to the process of selling a corporation's assets to pay obligations and settle liabilities.

In the event that a business is liquidated owing to bankruptcy, the liquidator may sell the company's assets to satisfy all outstanding debts. Any money left over after paying the creditors is distributed to the company's shareholders. Liquidation of a company is a complicated process.

Checklist for Winding up of Company in India

The board should be called to approve the dissolution of a firm | It is best to appoint an official liquidator or insolvency expert | The Income Tax Department's NOC should be requested concurrently | Before starting a winding up proceeding, a notification must be sent to the Insolvency and Bankruptcy Board of India (IBBI) within seven days after passing the resolution | The entire winding up of company process shall be finished in 12 months of the start of the liquidation of a company

Documents Required for Liquidation of a Company in India

• PAN card for the business
• Closing statement for the business's bank account
• A notarised indemnification bond that the directors must execute
• Most recent financial statement for the business
• Accounts that include all of the company's assets and obligations that have been reviewed by a Chartered Accountant (CA)
• Proof that at least 3/4 of the board members have approved the resolution
• Application to change the company's name.

Benefits of Company Liquidation of Company

• Free from debts after liquidation: Directors and all other company personnel are released from all obligations to and pressure from creditors once the process of liquidation is complete.
• Avoiding legal action against the company: Directors will disregard legal action taken by the court or tribunal if the resolution is approved willingly, giving them a chance to focus on other commercial prospects.
• Comparingly low cost charged for liquidation: The charges or expenses related to the process of liquidationare fairly small because there will be fees related to the sale of assets.
• All lease agreements will be cancelled: Any lease that a corporation or other entity has signed for a set period of time will be terminated, together with all of its terms and conditions, during the process of liquidation. If a fine is due, it will be subtracted from the proceeds of the asset sale.
• Advantages for creditors: After a protracted legal struggle, creditors will benefit from the process of liquidation because they will be eligible for a default payment with relation to the proposition of credits supplied by all creditors.

Modes of Winding Up of Company

There are two modes of winding up of a private limited company. As follows:

• Voluntary winding up of company: A voluntary winding up of company may be initiated by a special resolution or a resolution adopted at a general body meeting. To compel the winding up, the provisions and conditions of the Memorandum of Association (MOA) may be violated.
• Compulsory winding up: To carry out the compulsory winding up of a company at the command of a tribunal or a court, a specific resolution by the directors urging a court intervention may be passed during the firm's board meeting. Similar to this, the corporation must be forced to dissolve if any official files a petition with a court or a tribunal or if it engages in any illegal or fraudulent activity.

Top Reasons for Compulsory Winding up of a Company

A legal organisation created in accordance with the Companies Act is a private limited company. Therefore, throughout its life cycle, a corporation must keep its regular compliances.

For a company that is not functioning and wants to avoid compliance obligations, the process of liquidation is used. Some of the reasons why companies may winding up is discussed below.

• The company adopts a special resolution directing the tribunal to wind up the business
• failure on the part of the company to file a required report with the registrar's office
• failure of the company to launch its operations within a year of incorporation
• A public company's or a private company's number of employees has fallen below 7 or 2, respectively
• The business cannot afford to pay its debts
• The court's decision to dissolve the company is just and equitable
• The business is unable to submit its balance sheet or annual report for five consecutive fiscal years
• The corporation violated the nation's integrity and sovereignty.

An application for the closure of a firm must be submitted to the ministry of corporate finances within three to six months. This entire process can be done online.

If a firm doesn't submit its compliances on time, it will be fined and penalised, and its directors will be barred from founding new companies. It is better to dissolve an inactive corporation in order to avoid future penalties or liabilities.

Why Vakilsearch?

Vakilsearch will handle the entire process of liquidation to your highest level of satisfaction. You will provide us with all the paperwork. Our attorneys will keep you updated on all the processes and keep you up to date with all the information. The best part is you can start the process of liquidation in the most affordable range. All your documents are secure with us. Opt to our in-house Company secretary and chartered accountant to resolve all your queries regarding compliances. Vakilsearch is a one stop solution for all your needs.