Winding Up of Company

Winding up of a Company

The formal procedure via which a corporation finishes its operations and eventually dissolves is referred to as "company winding up" or "liquidation." This procedure comprises the methodical winding up of the business, which includes asset sales, paying off debts with revenues, and allocating any leftover funds to shareholders based on their ownership position in the business. Lawgical Adda is here to guide you through the procedure!

Benefits 

The Winding Up Process Follows Correct Method and Procedure

Complying with the relevant laws and acts would entail following the aforesaid procedure concerning the winding up of a firm.

The Company is not facing any legal action.

Directors would be able to voice their own ideas and suggestions for recovering the company during this process. The corporation and its directors can escape any legal action from the tribunal or the court if the recommendations are followed correctly. By doing this, the business can shift its attention to seizing business possibilities.

Very little money is needed

The costs associated with the aforementioned procedure are not high.

Protection of Creditors

If appropriate procedures are permitted to be used, creditors would be protected. Appropriate protocols are adhered to during the corporate wind-up process. Creditors are arranged according to the priority system that a specific business or firm uses. Therefore, the assertions that creditors supply beforehand would be protected. These procedures would protect their collective rights.

All lease agreements would be terminated.

All contracts and agreements, including lease agreements, that the company may have put into will be terminated as part of the liquidation process.

Procedures for Dissolution Under the Companies Act

There are three main methods available for winding up a corporation under Section 293 of the Companies Act 2017:

Winding Up Compulsorily - By the Court

This mode is started by a court order. Usually, it happens when the business is insolvent, violates the law, or needs to be wound up fairly and justly. An official liquidator appointed by the court oversees the process, which entails asset sales, creditor payments, and distribution of any remaining funds to shareholders.

Voluntary Winding Up

This happens when the company's creditors or members decide to wind up the business. If the business is solvent and able to pay its debts, the creditors may start the process, or the members (shareholders) may. Without the involvement of the courts, the corporation selects a liquidator to handle the winding-up procedure.

Subject to the Court's Supervision

In this form, the winding-up procedure is initiated voluntarily and is supervised by the court. In order to safeguard the interests of different stakeholders and guarantee that the winding-up process is carried out fairly and openly, the court may choose to step in and oversee it.

Reasons for Dissolving a Company

There are particular reasons why a business can be wound up:

1. If the tribunal determines that the business cannot afford to pay its debts. According to Companies Act 2013, s. 271(2), it is impossible to pay debts.
2. If a special resolution has been adopted by the corporation to wind up its affairs.
3. In the event that the business violates the state, India's sovereignty, and its integrity, it may lose its cordial ties with other nations.
4. If the tribunal has thought about closing the business under chapter 19 because it is a sick business.
5. In the event that the tribunal finds that the business engaged in fraudulent or illegal activity. The registrar or anyone wishing to file a complaint about the company's operations may invoke this clause.
6. If the business has a history of fraud and incorrect annual return submission.
7. If the tribunal determines that winding up the business is fair and just.

Which Documents Are Needed to Close a Business?

When winding up a company, the following documents must be submitted:

1. The company's certificate of incorporation
2. The company's articles of association and memorandum of agreement
3. Certificate pertaining to the company's bank account closure
4. A copy of the board resolution is also attached to the creditors' resolution, which states that three-fourths of the members have accepted
5. Form WIN 1 or WIN 2: Winding Up Petition Statement of Accounts of the Company Statement of Affairs of the Company in the Format of Form WIN 4 Affidavit of Concurrence in Form WIN 5 Vernacular Newspaper Advertisement Form WIN 6 Designation of Temporary Liquidator in Form WIN 7 and 8
6. Form STK-2 (Procedure for winding up a dormant or deceased company) (This would only be used for the court-mandated expedited procedure)

How Much Time Is Needed to Close a Business?

The amount of time it takes to close a firm might vary greatly depending on a number of factors. Depending on the intricacy and scale of the company, the initial steps towards liquidation preparation, which include paying off debts, informing creditors, and finishing all legal processes, could take anywhere from two to three months.

After the liquidation phase begins, it may take many months or even over a year to liquidate assets, distribute proceeds to creditors, and fulfil all outstanding legal obligations.

Lawgical Adda can help you simplify the winding-up of your business. With our professional support, we can ensure compliance and a hassle-free liquidation. Our committed staff provides individualised assistance, assisting you at every stage—from ROC filing to final settlement—making the winding-up procedure simple and stress-free.