Closer of Private Limited

Process of closing a Private Limited Company in India

People register a company because they have a solid business idea that they want to implement but, because of certain circumstances, can't. Also, sometimes people register a company for future projects that are not even operational in the present.

Registering a company comes with a list of compliances which need to be followed. Adhering to them is a costly process when the company is dormant. So, most people just keep the company as it is and ignore the compliances or spend money on the compliances.

However, this was the case earlier as closing a company was a tedious task. Now, the formalities have reduced and there are much quicker ways to close a company.

So, if you have a company that is not functional then you can do two things.

Fast Track Exit Mode (FTE) - Shut your Company

As the name suggests, this mode allows you to shut your company quickly. Defunct companies can apply through this mode.

What is a Defunct Company?

A defunct company has:

  • NIL Liabilities and NIL Assets
  • No business activity since its inception
  • No business operations past a year

The process of applying through FTE Mode

  • Open the MCA website and fill Form FTE. The form needs to be digitally signed by the authorized director.
  • The application fee for the process is Rs.5000.
  • After receiving the application, the Registrar will display the name of the company on their website for 30 days. If someone has an objection with the company closing, then this is the time to speak up.
  • If no one has an objection, then the Registrar will strike off the company name after 30 days and issue a certificate of closure. The certificate will state that the company’s name is struck off from the register of companies maintained with ROC.

The list of documents that you need to attach with FTE are:

  • An approval from the board of directors for the closure of the company.Also, there needs to be a board resolution through which they approve applying for the FTE.

    Please note: All the bank accounts and registration certifications with the government should be closed or cancelled before applying for the closure.

  • After the resolution is passed, all the directors are supposed to produce a notarised affidavit on a stamp paper of Rs100 which includes the following:

    • All the directors swear that they are the directors of the company demanding for closure.
    • All the company bank accounts are closed.
    • The company has nil assets or liabilities.
    • The company needs to claim that they have been carrying no business for a minimum of one year.
    • The varied reasons for not being able to do business.
    • The company also needs to state that there are no statutory dues pending in the name of the company. At the same time, the company has no litigations pending in the court of law against or involving the company.
  • After this, all the directors of the company must execute an Indemnity Bond under the witness of 2 people on a stamp paper of Rs.200. They have to undertake the following:
    • To indemnify any person for the losses that might arise pursuant to striking off the name of the company.
    • They need to promise to pay and settle all lawful claims that might arise in the future after striking off the name of the company.
    • To settle all the lawful liabilities and claims which have not come to the Registrar’s notice.

The process of granting the “Dormant Status”

This option is only valid when you have registered a particular company for the future and the company is not operating currently. Also, when you want to close an in-operational company which has land and assets, then choosing the dormant status can help.

  • What is a Dormant Company?

    A dormant company is an inactive company. It can qualify as a dormant company if

    • It has not been doing any business operations.
    • There are no significant accounting transactions in the last two financial years.
    • It has not filed financial statements or annual statements for the past two business years.
    • A default company which has not submitted financial statements or annual statements in the last two years.

  • How to obtain the status of a Dormant Company?

    • You must draft an application with the form MSC-1 to obtain the dormant status.
    • A resolution should be passed in the company for the directors to authorize the application of Dormant Status. So, you have to file E-form MGT-14 with ROC to obtain the special resolution.
    • After the consideration of the application, the Registrar must file Form MSC-1 and issue a certificate in Form MSC-2, hereby allowing the status of a dormant company.

  • Benefits of applying for the Dormant Status

    There is a lesser compliance burden for a dormant company and so it reduces the costs of maintaining such a company.

    Dormant Companies don’t have to adhere to the following compliances:

    • To add cash flow statements with their financial statements.
    • Do not have to hold board meetings at the end of every quarter. Dormant companies are required to hold only 2 meetings in a financial year.
    • No need to rotate the auditors.

    Compliances that Dormant Companies need to follow are

    • They need to file a “Return of Dormant Company” every year indicating their financial position. Also, this needs to be audited by a Chartered Accountant in practice.
    • Submit form MSC-3 with annual fees provided in the Companies Registration Offices and Fees Rule, 2014. This needs to be submitted within a period of 30 days from the end of each financial year.

      • Please Note: A company can stay dormant for a maximum 5 consecutive financial years.

      If a company remains dormant for more than 5 consecutive financial years, then the Registrar will initiate the process of striking off the name of the company from the records.

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