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CLOSURE OF A COMPANY (FAST TRACK EXIT)

Filing of MGT-14

Filing of STK-2

Preparation of necessary documents and completing compliances as per Secretarial standards

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    Contents

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    Introduction:

    Closing a company under the Companies Act 2013 involves a process known as strike-off, providing an alternative mechanism to winding up. The Companies Act offers two modes of strike-off:

     strike off by the ROC (Registrar of Companies) under Section 248(1);and

     strike off by the company on its own accord under Section 248(2).

    This article will delve into the concept of company closure through strike-off, highlighting the relevant provisions under both sections.

    List of Documents Required

    How Does It Works?

    Form Submission

    Callback From Our Team

    Final Quote And Payment

    Document Submission

    Filing of STK-2 And MGT-4

    Issuance of Strike off Order

    Grounds for Strike Off

    Strike-off can be initiated based on the following grounds:

    Non-commencement of business within one year of incorporation. Inactivity or absence of business for two consecutive financial years, without seeking Dormant Company status under Section 455 of the Act.

    Dormant Company:A dormant company refers to a registered company that remains inactive or does not engage in significant accounting transactions. To qualify for dormant company status and its associated benefits, an application must be filed with the Registrar. The concept of dormancy was introduced in the Companies Act of 2013.

    Strike Off by ROC:The ROC can issue a notice in Form STK-1 to the company and its directors if reasonable cause exists for strike-off. This notice informs the company of its name’s removal from the records and requests the submission of relevant documents within thirty days. This process is referred to as compulsory removal of name by the Registrar of Companies.

    Strike Off on the Company’s Accord:A company can voluntarily file an application in E-Form STK-2 with the Registrar of Companies after settling its liabilities. This requires passing a special resolution supported by seventy-five percent of its members.

    Checklist for Strike Off:To initiate the strike-off process, companies must follow the following procedures:

    Holding of Board Meeting:Convene a Board Meeting to pass resolutions related to strike-off.
    Designate one of the directors to make the application for strike-off to the Registrar of Companies.
    Closing off Liabilities: Settle all outstanding liabilities before commencing the strike-off process.
    Holding of General Meeting: Conduct a general meeting of shareholders to pass a resolution for striking off the company’s name.
    Obtain the support of seventy-five percent of members based on the paid-up share capital.
    File E-form MGT-14 within thirty days of the general meeting.
    Furnishing Application and Documents: Submit an application to the Registrar of Companies along with the following documents:
    • Notarized indemnity bond (Form STK 3) signed by all directors.
    • Statement of liabilities certified by a Chartered Accountant.
    • Affidavit (Form STK 4) signed by all directors.
    • Certified copy of the special resolution.
    • Statement regarding any pending litigations involving the company.
    Implications of Dissolvement: Upon dissolution, a company ceases to operate as a legal entity from the date of dissolution. The Certificate of Incorporation issued by the ROC is deemed canceled, except for the discharge of existing liabilities or obligations. Directors, officers, and members of the dissolved company remain subject to their respective liabilities even after dissolution.
    Non-Qualifying Companies: The following companies do not qualify for strike-off provisions:  
    • Listed companies.
    • Companies delisted due to non-compliance with listing regulations or other statutory laws.
    • Vanishing companies.
    • Companies under inspection or investigation, with pending or ongoing prosecutions.
    • Companies failing to respond to notices or furnish follow-up instructions on reports.
    • Companies with pending compounding applications or public deposits.
    • Companies with outstanding charges.
    Companies registered under Section 25 of the Companies Act 1956 or Section 8 of the Act.

    Conclusion:

    Closing a company through strike-off requires adherence to the ROC compliances outlined in the Companies Act 2013. By following the step-by-step procedures and fulfilling the necessary requirements, you can ensure a seamless and legally compliant closure process. Our professional experts at Instafiling can help you navigate the complexities and ensure a successful closure of your company.

    FAQs

    The fast track exit scheme allows companies that have been out of business for over a year or are struggling to close down their operations efficiently. This scheme enables a quicker and more streamlined closure process, avoiding the need for lengthy liquidation proceedings or intervention from the high court.

    The Registrar of Companies holds the authority to proactively remove the company’s name from the Registrar of Companies (ROC) without requiring any external application.

    Below are the guidelines to be eligible for fast track exit mode:

    1. The Company which has failed to commence its business within one year from the date of its incorporation;
    2. A company which has not conducted any business or operations for a period of 2 years and has not filed any application for obtaining the status of dormant company under Section 455.
    3. The consent of 75% of members in terms of paid up capital is required.
    4. Closure of Company’s Bank account
    5. Extinguishment of all assets and liabilities.
    6. All the annual filings till the company was operating should be completed.

    To close your company, follow the below steps: 

    1. Obtain the consent of 75% members in terms of paid up capital. 
    2. Extinguish all the assets and liabilities.
    3. Close the Company’s bank account.
    4. Ensure that all the annual filings are completed till the date of business activities.
    5. File the application for closure in Form STK-2.

    The application filed for closure under fast track takes about 4-5 months for processing and approval.

    It usually takes around 4-5 months to close the company under the fast track exit scheme.

    The below mentioned companies can opt for fast track closures:

    1. The Company which has failed to commence its business within one year from the date of its incorporation; or
    2. A company which has not conducted any business or operations for a period of 2 years and has not filed any application for obtaining the status of dormant company under Section 455.

    The requirements for closure of company are as follows:

    1. Consent of at least 75% of members in terms of paid up capital.
    2. Extinguishment of all assets and liabilities.
    3. Completion of all Annual filings till the date of business activities.
    4. Closure of bank account of the company.

    The company which is inoperative and not having any business can file for closure of the company in Form STK-2 by taking 75% members approval in terms of paid up capital, extinguishing all assets and liabilities, and closing the bank account of the company.

    The Fast Track Exit Mode (FTE) enables the companies that have been out of business for over a year or are struggling to close down their operations efficiently without any NCLT or High court’s approval.

    To close the company under FTE mode, an application can be filed in Form STK-2 after completion of all the requirements.

    The government charges for filing of eForm STK-2 is INR 10,000.

    Below mentioned companies can apply for closure under Fast Track Exit mode:

     

    1. The Company which has failed to commence its business within one year from the date of its incorporation; or
    2. A company which has not conducted any business or operations for a period of 2 years and has not filed any application for obtaining the status of dormant company under Section 455.

    The following companies cannot apply under Fast Track Exit mode;

    1. Listed Companies;
    2. Companies that have been delisted due to due to non-compliance of listing regulations or listing agreement or any other statutory laws;
    3. Vanishing Companies;
    4. Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;
    5. Companies against which any prosecution for an offence is pending in any court;
    6. Companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default;
    7. Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
    8. Companies having charges which are pending for satisfaction; and
    9. Companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.

    The below documents are required to close the company:

    1. Statement of accounts not older than 30 days from filing application for closure.
    2. Indemnity Bonds by all directors in Form STK-3.
    3. Affidavits by all directors in Form STK-4.
    4. Board resolution authorizing closure.
    5. Consent of 75% members in terms of paid up capital.
    6. Self attested and CA certified copy of PAN and Aadhar of all directors.
    7. Pan of the Company.
    8. Last Filed ITR acknowledgement.
    9. Bank account closure letter.

    The benefits of closure of company are as follows:

    Financial Relief: Closing a non-profitable or financially struggling company can provide relief from ongoing financial burdens, such as tax obligations, maintenance costs, employee salaries, and other expenses. It allows the owners to mitigate losses and redirect resources to more promising ventures.

    Personal Liability Protection: Company closure can protect the owners, directors, and shareholders from personal liability. Once the company is properly dissolved, they are generally shielded from future claims or debts associated with the company’s activities.

    Closure of Business Operations: Closing a company signifies the formal termination of business operations. It allows stakeholders to wind down affairs, sell off assets, settle outstanding contracts, and discontinue any ongoing commitments or obligations.

    Resource Reallocation: Closing a company frees up resources, including financial capital, human resources, and time. These resources can be redirected towards new business ventures, investments, or personal goals.

    The government fee for closure of company for filing form STK-2 is INR 10,000. Besides this, there are stamp duty and notarisation charges involved for Indemnity bonds and Affidavits of all directors. Further, there may be consultation fees involved in case the services of any professional is taken for the closure of company.

    No, a company against which litigations are pending cannot apply for closure under this scheme.

    Closing a company under the Fast Track Exit scheme offers several benefits, including:

    Quick and Streamlined Process: The Fast Track Exit scheme provides a faster and more efficient closure process compared to traditional methods. It eliminates the need for lengthy liquidation procedures or high court interventions, saving time and resources.

    Cost Savings: By avoiding lengthy legal proceedings and court interventions, the closure process under the Fast Track Exit scheme can result in significant cost savings. This is particularly beneficial for companies that are already financially strained or struggling.

    Relief from Compliance Requirements: Closing a company under the Fast Track Exit scheme relieves the company from ongoing compliance requirements, such as filing annual returns, maintaining statutory records, and meeting regulatory obligations. This can save administrative effort and expenses associated with compliance activities.

    Removal of Legal Liabilities: Once the company is successfully closed under the Fast Track Exit scheme, it helps in mitigating legal liabilities. The closure ensures the formal dissolution of the company, reducing the risk of future claims or debts.

    The following companies cannot go through Fast Track Exit Mode under following circumstances:
      1. If the company is a listed Company;
      2. Companies that have been delisted due to due to non-compliance of listing regulations or listing agreement or any other statutory laws;
      3. Vanishing Companies;
      4. Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;
      5. Companies against which any prosecution for an offence is pending in any court;
      6. Companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default;
      7. Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
      8. Companies having charges which are pending for satisfaction; and
      9. Companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.

    The stamp duty that needs to be paid is INR 100 for affidavit and INR 500 for indemnity bond.

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