The winding-up of a company is the last stage for the existence of a company. It is the procedure or process by which a business is wind up, dissolved or closed. The winding-up of a company is the procedure under which all the creditors are paid off of the company and all the assets are sold and also the books of accounts are closed. And the resources if remaining are to be distributed among the partners in case of a partnership or the stakeholders in case of owners of the company. There may be several reasons for winding up a company including the closure of a business, bankruptcy, loss, death of promoters, etc.
The winding-up of a company can be done in different ways:
1. Winding up of a company by Tribunal
A company can be wound up by a tribunal, as per the companies’ act 2013 if:
Company is unable to pay its debts
If the company has not filed the annual return and annual statements for the preceding five years.
If the company has acted against the interest of the integrity and sovereignty of India, friendly relations with foreign states, decency or morality and public order.
If the affairs of the company have been conducted in an illegal manner or if the company was formed for unlawful and fraud purposes.
If the person concerned in the management and formation of its affairs have been guilty of fraud, misconduct in connection.
2. Voluntary winding up of a company
Voluntary winding up of a company takes place by the mutual agreement of the members of the company. It may take place either bypassing of a special resolution or by passing an ordinary resolution. Voluntary winding up of a company is a result of the expiry of the time period of a company as fixed by the articles of association or the project or event for which it was constituted.
Procedure for voluntary winding up a company
The company shall conduct a meeting with a minimum of 2 directors with the agenda to start winding up of a company. The directors shall make sure that the company does not have any third party debts or if it does it would be able to repay its debts in case the company is wound up.
The company should pass notice to the shareholders regarding a general meeting for passing the resolution for the same.
The company should pass an ordinary resolution in the general meeting to wind up a company by a simple majority of 3/4 th members.
The company shall conduct a meeting of all creditors after passing the resolution. In case most of the creditors are of the opinion that winding up of a company will be beneficial then the company will proceed to the process of winding up.
Within 10 days after passing the resolution, the company must file a notice of winding up with the ROC (Registrar of companies).
Within 30 days after passing the resolution, the company shall file the certified copies of special and ordinary resolutions that are passed in the general meeting.
The company shall wind up the affairs of the company, prepare the liquidator's account and get it audited.
Again the general meeting is conducted for the improvement of winding up an objective.
In the general meeting, the company shall pass the special resolution for the disposal of books and necessary documents.
After passing the resolution, within 15 days the company shall submit the copy accounts as well as file an application for winding up in the tribunal
If satisfied with the documents submitted by the company, the tribunal shall pass an order within 60 days for the dissolution of the company.
After the order passed by the tribunal, the official liquidator should file a copy of the order to the ROC (Registrar of companies).
On receiving the order passed by tribunal, Registrar shall publish a notice declaring that the company is dissolved.
1. What is winding up?
The winding-up of a company is the procedure under which all the creditors are paid off of the company and all the assets are sold and also the books of accounts are closed.
2. What is liquidation?
It is a process by which a company is shut down and also the claims of and against the company is dissolved.
3. What are the reasons for winding up a company?
There may be several reasons for winding up a company including the closure of a business, bankruptcy, loss, death of promoters, etc.
4. What are the laws to be referred for winding up a company?
Winding up is being done under the code and act, 2013
Winding up by the tribunal is done under the companies act, 2013
Voluntary winding up for corporate persons is done under the code.
Voluntary winding up other than corporate person done under the companies act, 1956
5. Are the winding-up provisions relevant to society?
Yes, according to section 42 of the co-operative societies act, 1912, it is relevant.
6. Who shall I file a voluntary winding-up petition with High court or NCLT?
Since voluntary winding-up provisions are under the code, the application shall be filed with the high court in accordance with the provisions of the act, 1956.
7. How long does winding up of a company takes?
It generally takes about 28 days for winding up a company.
8. Can a shareholder remove a director?
Yes, the majority of the shareholder can remove a director by passing an ordinary resolution and after giving special notice. The dismissed director will continue to own the shares and will continue to be entitled to their share of dividends.
9. Can you remove a shareholder from a company?
Generally, shareholders are removed due to their death. Or shareholder can choose to leave a company on his own then he has a right to cash in their shares to buy shares in some other company.
10. What happens when a company is wind up?
The process of converting the company assets into the money will start that further can be used to pay the company's debts. One of the advantages of winding up a company is that it will also help employees get the money they are owed even in the case the company has no asset.