A corporation is said to be dissolved when a tribunal, in this case the National Company Law Tribunal (NCLT), dissolves it by order after the winding-up procedure has been completed. Following the company’s dissolution, the Registrar of Companies removes its name from the public records (ROC).
People occasionally mix up the terms “dissolution” and “winding up,” which both refer to the end of the business. When a firm is being wound up, a liquidator is chosen to resolve the matter and distribute the assets to the creditors and other important parties. After the winding process is complete, dissolution occurs.
What is Winding Up Company?
The process of winding up of a company involves gathering and selling the company’s assets in order to pay off any outstanding obligations. Debts, expenses, and charges are initially paid off and divided among the shareholders when a corporation is wound up.
After being liquidated, the Company is formally dissolved and no longer exists.
The legal process of winding up of a company allows a corporation to close its doors and stop all ongoing operations. After the Company winds up, its existence ends, and the assets are watched over to ensure that the interests of the stakeholders are not compromised.
A Private Limited Business is an artificial legal entity that is subject to a number of requirements. If the company does not uphold these requirements, it may be subject to fines, penalties, or even disqualification of the Directors from forming more companies. It is usually preferable to dissolve a business that has ceased operations or has no transactions.
The Company’s shareholders may decide to dissolve the business at any moment. All outstanding debts must be paid regardless of whether there are workers, secured or unsecured creditors, or both. All company bank accounts must be closed following the payment of debts. In the event that the Company is dissolved, the GST registration must likewise be given up.
The winding up petition can be filed with the Ministry of Corporate Affairs after all registration have been given up.
A company is dissolved as a result of the winding up process. The firm is put under the management of a liquidator. The company’s assets are liquidated, and the money are used to settle its obligations. Any remaining funds, if any, are distributed to the members in proportion to their capital investment once the company’s debts have been satisfied.
The corporation is still in existence between winding up and dissolution and can still be sued in a legal or NCLT setting. The liquidator submits a request for a dissolution order to the NCLT after concluding the winding-up procedure. As a result, the company’s dissolution marks the completion of the winding up procedure.
The corporation may be wound up in one of two ways: either by a mandatory winding up or a voluntary winding up. The NCLT receives an application for winding up from the creditors, the ROC, or the firm itself, which starts the mandatory winding up procedure. After passing a specific resolution, the firm applies to the NCLT to begin the winding-up procedure, which starts the voluntary winding-up process.
When one of the following occurs, a creditor or ROC may force a corporation to be wound up:
- if the business is unable to pay its debts.
- if a business was created in a dishonest way.
- if the business violates the integrity and sovereignty of India, state security, law and order, morality, or decency.
- If the tribunal determines that winding up the corporation is equitable and just, then
- if the business fails to submit its annual reports or financial statements to the ROC for the previous five financial years in a row.
- if the Insolvency and Bankruptcy Code declares the firm insolvent.
A specific resolution must be passed, a liquidator must be appointed to sell the company’s assets, and liquidation reports must be prepared for a voluntary winding-up of the business. To wind up the company’s affairs and erase its name from records, these reports must be delivered to the ROC.
What is Striking Off a Company?
The Registrar of Companies issues a Certificate of Incorporation at the time of incorporation, confirming the Company’s existence. Unless the business requests it or is required by law, the name of the firm cannot be deleted once it has been placed into the register. The registrar may suo moto Strike Off the Firm by issuing notice to the company at its registered office location when the company fails to start up its operations or fail to file yearly returns.
Strike of Company Meaning:
If we interpret the term “strike-off” literally, this implies deleting the company’s name from the Register of Companies kept by the Registrar of Companies. It is more likely to the company being closed down, and after being struck off company, it will cease to exist and be unable to carry out any further operations.
You Can Contact MUDS if You Wish to Resurrect Your Struck-off Business.
A firm must typically be officially dissolved within three months, however this time frame might vary greatly if the process is complicated. But when the winding-up notice is published in the Gazette, a corporation will no longer exist after at least three months. However, some businesses could submit an application for striking off company’s name using the fast track exit option.
- Companies that have not operated or carried on any business for the past two years from the date of application, companies that have not operated or carried on any business within a year of incorporation, and companies with no assets or liabilities may apply under the fast track exit mode to have their names removed.
Companies that are not eligible for Strike off:
The following situations will not qualify a firm for striking off under the Companies Law:
- The firm was formed after November 2nd, 2018, however no 20A has been submitted.
- It hasn’t been a full year since incorporation.
- For an active business that has conducted transactions during the last two years.
- DIN has been disabled.
- Every director is ineligible.
- The ROC has already notified the corporation of the strike off.
- Any outstanding legal actions are ongoing.
By simply sharing your business name with the MUDS team, you may easily remove an incorporated or registered firm from the list of companies kept by the state registrar. Both a dormant corporation and a firm that is currently operating can submit an application for the strike-off.
Online processing is used for the company strike-off process. The Company Strike-Off List in India is also available from MCA records. A request to have the name of the corporation or voluntary Strike Off Company removed must be filed in Form STK-2 and include the required payments.
Difference between Winding up and Dissolution of Company
There are two distinct processes in the process of ending a company: winding up and dissolution. Before the business is dissolved, a liquidator acting under the Tribunal of Laws settles and distributes the firm’s assets among its creditors and shareholders. This procedure is known as “winding up.”
The National Company Law Tribunal has the authority to dissolve a company when the winding-up procedure is complete. In this case, the company’s name will be removed from the Register of Companies and it will be announced in the Official Gazette that it has ceased to exist.
Wind Up of Company
According to the Insolvency and Bankruptcy Code of 2016, winding up refers to the liquidation of the corporation, and there are many types of wind up:
- Compulsory dissolution of the Company
- A company’s mandatory dissolution might take the form of a voluntary dissolution imposed by the company’s creditors.
- voluntary closure of the company
- method for the voluntary winding up of a private limited corporation brought about by a corporate person.
A company’s winding up is a two-step procedure that starts with the insolvency resolution process and ends with the company’s liquidation. While the firm is being wound up, the corporate entity is still in existence; however, following dissolution, the corporate entity is no more.
The Central or State Government, the company, its donors, a Registrar, or the firm itself may all file a petition for winding up.
If it believes it will be helpful for the winding-up process, a company may continue to operate during the Indian winding-up process. However, following dissolution, the corporation ceases to exist and ceases to conduct business.
Dissolution of Company
A business may be dissolved in one of two ways.
First time a firm is sold to another business as part of a rehabilitation or merger plan. In this scenario, the Tribunal will issue an order dissolving the transfer of the firm without winding it up.
In the second scenario, the business will go through a winding-up procedure in which its assets will be realised and the money would be utilised to settle its debts. The remaining money, if any, will be divided among the parties involved after the debts have been paid, and the tribunal will then issue an order dissolving the business and removing its name from the Register of Companies.
Process of Winding up and Dissolution of Company
The Tribunal decides whether to wind up a firm, and in India, the process is entirely a matter for the courts to decide. The winding-up procedure is carried out and managed by a liquidator. The dissolution process begins afterwinding up of a company.
The registrar of companies keeps a record of a company’s dissolution. There is no role for the liquidator in this activity; it is simply administrative. A stage that must come after a firm is wound up is dissolution.
What Factors Cause a Company to Dissolve?
When opposed to a Limited Liability Partnership (LLP), one drawback of a partnership firm is related to business continuity. An LLP is regarded as a distinct legal entity and will continue to operate even in the event of one of the LLP Partners’ passing or disability. On the other side, there may be a death, an inability to work, or a number of other factors as listed below. In this article, we examine some of the main causes of a partnership firm’s breakup.
Causes of Partnership Firm Dissolution
For a number of reasons, a partnership firm may be dissolved or shut down. Any of the following factors might cause a partnership business to dissolve, willingly or involuntarily:
Abandonment by Agreement
Any partnership firm may be dissolved by giving written notice to each of the partners. The partnership firm may be dissolved if unanimous consent is received from all of the partners. The most typical sort of dissolution is referred to as voluntary dissolution.
Removal by Notice
A partnership business that is at-will might be dissolved at any time by any one of the partners by giving the other Partners notice. The written justifications for the partnership firm’s dissolution must be included in the notice from the Partner. If there is no predetermined date for the firm’s dissolution under this manner of dissolution, the notice is effective as of the day it is issued, and the firm is dissolved after that date has passed.
Bankruptcy of the partners
The partnership firm should be forcibly dissolved if all of the partners are found to be bankrupt or even if only one of them appears to be inactive or mentally unstable.
Participation in Illegal Business
When some commercial activities of the partnership firm are prohibited by local law, the business firm’s operations may in some cases be deemed unlawful. In this situation, the partners may decide to dissolve the partnership company or may do so after giving notice to them.
If a partner dies while carrying out the duties of an acting chairman among the remaining partners of the business firm, the partnership firm must be dissolved.
Finality of Term
If the Partners so agreed and the partnership deed of the company specifies a deadline for dissolution, then those conditions must be followed.
Finished Work or Contract
It is possible to establish a partnership firm to carry out a certain business objective or contract. Therefore, the partnership business may be dissolved in accordance with the agreement upon conclusion of the project or contract.
Departure of Partner
If any one of the registered partners does not want to carry on with the business owing to disagreements with other partners or financial loss, the partnership firm may be dissolved.
Major Difference between Winding up & Striking off a Company in India
Based on a quick analysis of the aforementioned procedures, one could be tempted to draw the conclusion that there is no distinction between the two processes in terms of bringing the firm to a close. Both must follow certain procedures in order to comply with the law.
However, there is a significant distinction between striking off and winding up procedures based on actual regimes. On average, the winding-up procedure takes more than two years to complete, which is significantly slower. The striking off process is more quicker and easier than the other. However, only in the event of “defunct firms” may it be legal to monitor this method.
For dissolved businesses or firms, striking off company is the ideal method because there are no or very few responsibilities. When a company no longer needs to exist, it must wind up its affairs since it has assets and obligations. However, compared to winding up of a company, the striking off company operation is less costly. In a winding-up situation, costs are incurred for the court or tribunal, the liquidator’s expenses, etc.
Given the ease of the process, the short amount of time required, and the fact that striking off is less expensive when a firm has ceased operations, it is a good choice to accomplish closure. However, in order to complete this procedure, the corporation must settle all outstanding debts and statutory obligations and be clear of any litigation or existing legal actions. Businesses typically cease operations when their net value is completely or severely diminished and they are not profitable.
A vide circular was issued by the Ministry in July 2011 to quicken the winding-up process. The process under the most recent Companies Act need to be carried out more simply and efficiently, taking into account the size and structure of the firm.
If you want professional help on any part of winding up of a company or striking off company, our MUDS group will be available to you. We will work with you to guarantee total adherence to all regulations based on your intended actions, resulting in the successful and on-time completion of your task.