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The winding up of a company refers to the formal process of closing down its operations and liquidating its assets to distribute the proceeds among creditors and shareholders. This can happen voluntarily, initiated by the company’s members, or involuntarily through a court order. There are two primary modes of winding up: voluntary and compulsory.

In a voluntary winding up, the members pass a resolution to dissolve the company, appoint a liquidator, and oversee the distribution of assets. This process is initiated when the company can no longer operate profitably, has fulfilled its objectives, or if the shareholders decide to discontinue operations.

Compulsory winding up occurs under the direction of a court, typically due to insolvency, fraud, or a failure to comply with legal requirements. The court appoints a liquidator to manage the winding-up process, ensuring fair distribution of assets among creditors and shareholders.

During the winding-up process, the company ceases its business activities, settles its liabilities, converts assets into cash, and distributes the proceeds according to a specified order of priority. The liquidator plays a crucial role in overseeing these activities and ensuring compliance with legal requirements.

Winding up marks the formal conclusion of a company’s existence, and it involves legal procedures to ensure fair treatment of all stakeholders involved, including creditors, employees, and shareholders. The process is guided by company law and aims to bring about an orderly and equitable resolution to the company’s affairs.

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Winding Up of Company

Types of Company Windup

What are the different ways in which an individual can wind up a Company?

A company can be wound up in two different ways-

• Voluntary winding up of a Company
• Compulsory winding up of a company

Voluntary Winding up of a Company

The Winding up of a Company can be done voluntarily by the members of the Company, if:

• The company passes a special resolution for winding up the Company.
• The Company in general meeting passes a resolution which requires a company to wind up voluntarily as a result of the expiry of the period of its duration, any as per the Articles of Association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.

Procedure for Voluntary winding up of a Company

• Convene a board meeting with the Directors in which a resolution should be passed with a declaration by the directors that they have inquired into the affairs of the Company and the company has no debts or the Company will pay from the precedes of the assets sold in the voluntary wind up of the company.
• Notices should be issued in writing to call for the general meeting of the Company proposing the resolutions, with a suitable explanatory statement.
• Pass the ordinary resolution for winding up of the Company in the general meeting by ordinary majority or special resolution by 3/4 majority. The Winding up of the Company shall commence from the date of passing the resolution.
• A meeting of the creditors should be conducted on the same day or the next day of passing the resolution regarding winding up. If the 2/3rd value of the creditors believe that it is in the interest of all parties to windup the Company, the Company can wound up voluntarily.
• Within 10 days of passing the resolution for the company winding up, a notice for the appointment of a liquidator must be filed with the registrar.
• Within 30 days of the general meeting for the winding up the certified copies of the ordinary or special resolution passed in the general meeting for the winding up of the Company.
• The affairs of the company need to be winded up and the liquidator’s account of the Winding up account to be audited.
• Call for the final General meeting of the Company.
• A special resolution should be passed for the disposal of the books and the papers of the company when the affairs of the company are completely wound up and it is about to be dissolved.
• Within two weeks of the general meeting of the Company, file a copy of the accounts and apply to the tribunal for passing an order for the dissolution of the company.
• The tribunal shall pass an order dissolving the company within 60 days of receiving the application.
• The company liquidator is required to file a copy of the order with the registrar.
• The registrar will then on receiving the copy of the order passed by the Tribunal publish a notice in the official gazette that the Company is dissolved.

Compulsory Winding up of a Private Limited Company

The tribunal is responsible for this kind of wind-up of Companies.

Here are the reasons for the same:

• Unpaid debts of a Company
• When a special resolution is passed fort winding up
• An unlawful act by a company or the management of the Company
• If the company is involved in fraudulent acts or misconduct
• If the annual returns or financial statements are not filed for five consecutive years with the ROC
• The Tribunal is of the view that the company should windup.

Procedure for Compulsory Winding Up of a Company

Step 1: Is to file a petition to the tribunal along with the statement of the affairs of the Company that is to wind up.

Step 2: The tribunal will either accept or reject the petition if a person other than the company files a petition then the tribunal may ask the company to file an objection. It goes along with the statement of affairs within 30 days.

Step 3: The Liquidator needs to be appointed by the tribunal for the winding up process. The liquidator carries out the function of assisting and monitoring the liquidation proceedings.

Step 4: Liquidator is supposed to prepare a draft report for approval. When the draft report gets approved he shall submit the final report to the tribunal for passing the winding-up order.

Step 5: It is necessary for the liquidator to forward a copy to the ROC within 30 days, if he fails to do so then he will get a penalty.

Step 6: If the ROC finds the draft satisfactory he then approves the winding up of the Company and the name of the Company is struck from the register of Companies.

Step 7: ROC sends notice for Publication in the official gazette of India.

Top Reasons Why Companies Wind Up

What are the top reasons why Companies wind up?

A private Limited Company is a legal entity established under the Companies Act. Therefore, a company is required to maintain regular compliance throughout the life cycle.

The process of winding up is for a company that is not active and avoids compliance responsibilities.

A company can also be closed by applying with the Ministry of Corporate Finance in about 3 to 6 months. This process can happen online entirely. The process for closing a company is fast and easy if done through FinHub Advisors Pvt Ltd.

If a company doesn’t file the compliances on time incurs a fine and penalty including debarring the Directors from starting another Company. In that way, it is better to wind up an inactive company and avoid the potential fines or liability in the future.

As compared to the maintenance of compliances for a dormant company it is actually to wind up a company again when the time is right.

A company that maintains proper compliance can be liquidated easily. In case of any over-dues of compliances, it is necessary to regularize them first. However, it is to be noted that all the registrations also need to be surrendered.

Documents Required for Winding Up of a Company

• Incorporation certificate
• Company PAN Scan Copy
• Director’s PAN Card
• Director’s Aadhar Card
• Income tax Filed Acknowledgement and latest Balance sheet of the company.
• Latest Filed AOA Copy
• Latest Filed MOA Copy
• Bank Account Closure Letter