Closure of Inactive Company

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Overview

As a business owner, you recognize the inherent risks of running a company. Despite your best efforts, a business may not always succeed, potentially leading to its closure.

Closing a business is a challenge owners might face for various reasons. For a private limited company, there are four methods for shutting down operations.

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Ways to close a Private Limited Company:

Voluntary Closing:

Voluntary closure of a company, also known as voluntary winding-up, is the process where a company’s shareholders or directors choose to cease its operations and dissolve it as a legal entity. This formal procedure leads to the company’s voluntary dissolution, distinguishing it from a compulsory winding-up initiated by a government agency or court.

Sell the Company:

The transfer of ownership in a Private Limited Company, effected through the sale of shares that results in another individual or entity acquiring a majority shareholding, is not considered a voluntary winding-up. Although it leads to a change in controlling stakes and the discharge of responsibilities for the former majority shareholders, it is not a traditional winding-up process.

Defunct Company Winding Up:

Under the Companies Act, 2013, an inactive company is categorized as either “Defunct” or “Dormant.” The government provides specific benefits to these companies due to their lack of financial activity.

Compulsory winding up:

In India, a company that has engaged in, or been involved in, unlawful or fraudulent acts may be subjected to compulsory winding-up by the Tribunal under the Companies Act.

Closure of Inactive Company

Overview

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Ways to close a Private Limited Company:

Voluntary Closing:

Sell the Company:

Defunct Company Winding Up:

Compulsory winding up:

Steps to close a Private Limited Company:

1. Obtain a NOC (No Objection Certificate) from the Registrar of Companies (ROC) and file a declaration of solvency.

2. Call a meeting of the directors to pass a resolution for winding up the company and appoint a liquidator if required.

3. Give public notice of the winding up by publishing an advertisement in an official gazette and in two daily newspapers.

4. Hold a general meeting of the shareholders to pass a resolution for winding up the company and to approve the appointment of a liquidator.

5. File a copy of the resolution and notice with the Registrar of Companies.

6. The liquidator will take over the affairs of the company and wind up the company's assets and liabilities.

7. Once the winding up process is complete, file a final report with the ROC and obtain an order for dissolution of the company.

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