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Company Law

Company Closure

How to close a Company?

A “Company” is that artificial person in the eyes of law, which has a separate legal entity and is clothed legal personality. It is an entity that comes into existence in accordance with law and which can be dissolved / Wind up / go out of existence only after complying with the law.

A company in its existence is regulated with different statutes like The Companies Act, 1956, Income Tax Act, 1961, Foreign Exchange Management Act, 1999, Labour Laws, and all other applicable Laws. The Board / its Directors is/are responsible for any non compliance/s and may be held responsible for it.

Once a company is Incorporated in India, it cannot go out of existence on its own – it has to be wound up, as per applicable provisions and subject to the approval of the High court/ official liquidator.

In the present case there are three options available with the management:

Option 1 : Striking off the name of Company from the register of companies maintained with Registrar of Companies (ROC)

This option is available only when ROC is of the opinion that the Company is not carrying on its business or is not in operation.


  1. After extinguishing all its liabilities.
  2. Special Resolution / Consent of 75 % of the Members.
  3. Annual Filing (AOC-4, MGT 7) shall be filed up to end of the FY in which the company ceased to carry its business operations.
  4. In the last 3 months,
  • The company has not changed its Name or shifted its registered office from One State to another state.
  • The company has not disposed of any property or rights.
  • The company has not applied for C&A before Tribunal.

# Grounds:

  1. The company failed to commence its business within 1 year of incorporation.
  2. The company has not carried on any business or operation for the last 2 years and has not applied for the status of Dormant Company.
  3.  Subscribers to MOA have not paid the subscription which they had undertaken to pay.
  4. The company is not carrying on any business or operation, as revealed after physical verification carried out under section 12 (9).

The policy which is followed with regard to weeding out the defunct company is that where it appears from the latest available balance sheet of a defunct company that it has adequate realizable assets, steps are taken for compulsory winding up of company otherwise where it appears that sufficient assets are not available its name is struck off the register under section 248 of the Companies Act 2013.

But before ROC take any decision it also follows certain procedure including various steps like

  • Affidavit to the effect that the Company is not carrying on its business is taken from Directors along with latest audited balance sheet,
  • Indemnity bond from the Directors is taken that they will pay off all their Liabilities after the Company is being struck off as defunct company,
  • Notice is sent to Income tax commissioner and its no objection certificate is obtained, etc., and

It is only when ROC forms an opinion that it is not carrying in the business and it is just to struck off its name that the company is struck off as a defunct Company.

Option 2 : Winding up the Company

A Company can be wind up voluntarily either by its members or by its creditors or it can be compulsory wind up by the order of Court. It is regulated under Chapter XX of Co Act 2013 or under the Insolvency and Bankruptcy Code, 2016. There needs to be complied with other statutes also like labour laws, Income tax Act and others. Winding up of Company is a time consuming process which involves steps like Preparation of declaration of solvency by the Board of Directors, passing the resolution by the shareholders of the Company, giving the notice for winding up of Company in newspapers, appointment of the liquidator by the members, taking the no objection certificate from lenders, creditors and other authorities/persons whose interest is likely to be effected with the winding up of Company and etc. It is a time and cost-consuming method and not advisable.

Option 3 : Changing the Management of  the Company 

Change in the management of the company is possible when some other person or company takes control in its hand which is in other words can also be called a slump sale of the business to some other person. A slump sale is the sale of an entire business without assigning the individual values to the assets or liabilities. The new owner will have then have control of the company and he will run the business. It is the most practical solution.

Thanking You.

CS Aarti Kumari



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