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Winding up is the process of dissolving a company. While winding up, a company ceases to do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining assets to partners or shareholders. Winding up a business is a legal process regulated by corporate laws as well as a company’s articles of association or partnership agreement. Winding up can be compulsory or voluntary and can apply to publicly and privately held companies. The winding up of a company is the last stage of a companies’ existence. There may be several reasons for winding up of the company including mutual agreement among stakeholders, loss, bankruptcy, death of promoters etc. Winding up is the process by which the company is put to an end that is the process through which its corporate existence is ended and it is thereafter finally dissolved. As per section 270 of the Companies Act, 2013 a company can be wound up either by a tribunal or by way of voluntary winding up. The provisions of the act lay down proper procedures for the winding up of a company.
As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be initiated either –
a) By the tribunal or,
WINDING UP OF A COMPANY BY A TRIBUNAL:-
As per new Companies Act 2013, a company can be wound up by a tribunal in the below mentioned circumstances:
1. When the company is unable to pay its debts
2. If the company has by special resolution resolved that the company be wound up by the tribunal.
3. If the company has acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries.
4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive financial years.
5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.
6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.
VOLUNTARY WINDING UP OF A COMPANY:-
The company can be wound up voluntarily by the mutual decision of members of the company, if:
• The company passes a Special Resolution stating about the winding up of the company.
• The company in its general meeting passes a resolution for winding up as a result of expiry of the period of its duration as fixed by its Articles of Association or at the occurrence of any such event where the articles provide for dissolution of company.
PROCEDURE FOR VOLUNTARY WINDING UP:-
• Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration given by directors that they are of the opinion that company has no debt or it will be able to pay its debt after utilizing all the proceeds from sale of its assets.
• Issues notices in writing for calling of a General Meeting proposing the resolution along with the explanatory statement.
• In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority or special resolution by 3/4th majority. The winding up shall be started from the date of passing the resolution.
• Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion that winding up of the company is beneficial for all parties then company can be wound up voluntarily.
• Within 10 days of passing the resolution, file a notice with the registrar for appointment of liquidator.
• Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and also advertise in a newspaper.
• Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in general meeting.
• Wind up the affairs of the company and prepare the liquidators account and get the same audited.
• Conduct a General Meeting of the company.
• In that General Meeting pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.
• Within 15 days of final General Meeting of the company, submit a copy of accounts and file an application to the tribunal for passing an order for dissolution.
• If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving such application.
• The appointed liquidator would then file a copy of order with the registrar.
• After receiving the order passed by tribunal, the registrar then publish a notice in the official Gazette declaring that the company is dissolved.
WINDING UP OF THE LLP
The Limited Liability Partnership has been emerged as a hybrid form of entity with features of Company as well as Partnership. The separate legislation has been framed for functioning and governing LLPs. The Limited Liability Partnership Act, 2008 and rules made there under. There are numerous LLPs which were incorporated but have not done any business or stop doing business. In order to reduce the number of bogus entities, this is important to provide an ease in procedure of winding up. There are two ways of winding up of LLP first is voluntary winding up and second is compulsory winding up (by tribunal).
Any LLP can close down its business by adopting any of the following two ways:
A) Declaring the LLP as Defunct
In case the LLP wants to close down its business or where it is not carrying on any business operations for the period of one year or more, it can make an application to the Registrar for declaring the LLP as defunct and removing the name of the LLP from its register of LLP’s.
eForm 24 is required to be filed for striking off the name of LLP under clause (b) of sub rule 1 of Rule 37 of LLP Rules 2008. Similarly, Registrar also has the power to strike off any defunct LLP after satisfying himself of the need to strike off and has reasonable cause. However, in this case, registrar has to send a notice to the LLP of his intention and request to send their representation within one month from the date of the notice. The Registrar shall publish such notice or content of the application made by the LLP on its website for a period of one month for the information of the general public. In case no reply is received within the mentioned period, registrar may strike off the name of LLP.
Section 63, 64 and 65 of LLP Act 2008 governs the process for winding up of the LLP. It is the process where all the assets of the business are disposed off to meet the liabilities of the same and surplus any, is distributed among the owners. The LLP Act 2008 provides for following two modes for winding up the LLP
• Voluntary winding up by the Members and the Creditors
• Compulsory winding up
1. VOLUNTARY WINDING UP BY MEMBERS: The Limited Liability partnership, through its partners may decide to wind up the affairs of the LLP on any voluntary grounds on mutual agreement of the Partners or any other ground provided in the LLP Agreement of the concerned Limited Liability Partnership. The LLP shall appoint a liquidation or provisional liquidator to wind up the LLP and its affairs.
1(b) Voluntary winding up by creditors: Where the Limited Liability Partnership and its creditors are of the opinion that the LLP may not be able to fulfil and pay its liabilities to continue its business. Here, the LLP should convene the meeting of its creditors to allow them to consider the proposal for the company to be wound up.
2. COMPULSORY WINDING UP: An LLP may be wound up by the order of NCLT (National Company Law Tribunal), under certain circumstances as provided under the head of “Grounds of winding up” of this article. The Tribunal may appoint an official liquidator responsible for winding up of the affairs of LLP in respect to which the order of winding up and dissolutions is passed. The liquidator shall be the person responsible to undertake required steps and actions as and when necessary or under order of Tribunal.
Steps involved: The procedure of the winding up is lengthy and time consuming, which can be made easier and hassle-free by appointment of a professional in due course of winding up of Limited Liability partnership. The procedure of Voluntary winding up is explained below in brief in sequential manner.
1. Resolution of Voluntary winding up: Except the approval from the Partners of the LLP, the voluntary winding up cannot be affected. For commencement of the said procedure, first of all, a resolution seeking consent and approval of 3/4th of partners shall be passes in the meeting thereof. On passing of the said resolution, the process of winding up is deemed to be commenced
2. Declaration of Solvency: • Majority of the Designated Partners (not being less than two) are required to file an affidavit making declaration that the Limited Liability Partnership does not have any debt or that the LLP will able to pay its debts in full within specified period that does not exceed exceeding period of one year from the commencement of the procedure of winding up of the LLP.
3.Meeting of Creditors: The LLP shall file an application for winding up to the Tribunal after according consent of creditors in 2/3rd majority as to following effect that the voluntary winding up is in interest of all the stakeholders and other matters as prescribed.
4. Publication of Notice: A notice of the resolution shall be given within 14 days of consent from creditorsthrough newspaper advertisement circulating in the district, in which the Registered Office of the LLP or any other office being Principal Business Office is situated.
5. Appointment of Liquidator: The Liquidator, who shall be responsible to carry on the procedure of liquidation, shall be appointed within given period, who shall be referred as LLP Liquidator at remuneration fixed by and payable by LLP. The appointment shall be informed to the registrar within 7 days from appointment.
6. Audit of Accounts: •The appointment of Liquidator can be made by members or creditors by mutual agreement, however, if the creditors appoint different liquidator, the liquidator nominated by creditors shall be LLP Liquidator.
7. Report by LLP Liquidator: The LLP Liquidator shall prepare a report for furnishing the mode in which the winding up of the LLP is directed and the properties have been disposed of along with final accounts of winding up. The Partners/Creditors shall pass a resolution, if 2/3rd of the partners/creditors are satisfied with the report furnished by liquidator. The liquidator shall, within period of 30 days of passing of resolution, furnish final winding up of accounts to the Registrar along withreport and explanation in addition to filing an application withthe Tribunal for passing an order for LLPdissolution.
8. Dissolution of LLP: In case, the Tribunal finds the application and report furnished satisfactory with regards to the process of winding up,the Tribunal concerned may pass an order to the effect that the Limited Liability Partnershipshall stand dissolved. On receipt of the order, the LLP Liquidator shall file the stated order with the ROC, who shall furtherpublish a notice in the Official Gazette declaring that the LLP stands dissolved.