With the ease of doing business, the process and procedure of Incorporation of Companies has been streamlined and eased out. However, with the increasing number of regulations and compliance with heavy penalties for delays, many businesses find it difficult to survive and look for options to exit the Company mode of operation. Thus, government has provided many exit routes from Company mode where Company closure is one such option and requires fulfilment of certain conditions and documentation. Given below is a detailed list of conditions for closing a company in a fast manner and the procedure thereof. 

Section 248 of the Companies Act which deals with the Power of Registrar to remove name of the Company from Register of Companies, was made effective from 26th December, 2016 which gives Companies an easy exit route.

This section talks about closure of Companies wherein a Company can be struck off either by the action of respective Registrar of Companies or voluntarily by the Company.

I. Removal of name by the Registrar on its own

Sub section 1 of this section provides for the cases where Registrar can , on reasonable causes for him to believe, can strike off the name of companies from the Register of Companies and thereby leading to their closure. Following are the situations where Registrar can exercise his power:

(a) a company has failed to commence its business within one year of its incorporation;

OR

(b) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455. he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.

OR

(c) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub-­section (1) of section 10A: This has been made available for the Companies incorporated after 2nd November, 2018. Companies incorporated before this period are not required to comply with filing of Form INC-22A as per Section 10A (1).

OR

(d) the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.

II. Voluntary Removal of name by the Company

Sub section 2 of Section 248 and Rule 4 of The Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016, provides a platform to the Companies to apply for closure of the Company after fulfilling certain conditions and pre-requisites provided the Company has been inoperative for a period of atleast two years or ever since the date of incorporation.

Pre-requisites/conditions for applying for Striking off name of Company:

1. Extinguishment of all the assets and liabilities of the Company

2. Approval of members for applying for strike off of the Company by way of Special Resolution passed in a duly convened General Meeting or by obtaining consent of 75% of the shareholders in terms of paid up share capital.

3. Financial Statements (Form AOC-4/Form AOC-4 XBRL) and Annual Return (Form MGT-7) should be filed up to the end of the financial year in which the company ceased to carry its business operations

4. There must not be any pending litigations against the Company

5. The Company must not have received Notice from the Registrar under subsection 1 of Section 248, requiring the Company to

PROCEDURE for applying for Strike off by the Company under Section 248

1. Convene a Board Meeting to approve closure of Bank Account, pay off all the pending liabilities, to prepare latest Financial statement of the Company after closure of Bank account and to convene an Extra Ordinary General Meeting of the members

2. Send notice of EGM atleast 21 clear days before the EGM or obtain consent for shorter notice from atleast 90% of shareholders for notice period of less than 21 days.

3. Hold EGM and pass Special Resolution for approval of strike off of Company. Alternatively, instead of passing Special Resolution, consent of atleast 75% of the paid up capital holders can be obtained.

4. File E-form STK-2 with the respective Registrar of Companies.

If the Company fulfils these conditions and desire to shut itself down, it can go for striking off its name under this section.

Thus, this section provides for an easy exit route to the Companies fulfilling the above mentioned criteria.

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6 Comments

  1. Arvind Mohan says:

    The concept has been explained very nicely with you. It would be of interest to bankers as well. I publish an e-newsletter BANKERS WEEKLY which is subscribed to by more than 2500 branches of various banks and an equal number of individual subscribers. Would be interested in republishing it in this newsletter if you permit. I will need your photo and a 2/3 line intro to be published alongside the article.

  2. kajal garg says:

    The company has not filed commencement of business form as the company not opened the bank account and interested to close the company..but form stk 2 not allowed its strike off as ask for filing INC-20A..so what to be done in this case

  3. R Kumar says:

    In case of Voluntary Removal of name by the Company, should existing Bank accounts have to close first before applying and what treatment to be given for Cash in Hand in the book of accounts?.

    1. csaditijain says:

      If you are closing Company under this section, yes you are required to first close your bank account as the same has to be reported in Affidavit. Cash in hand can be used against payment of outstanding liabilities and expenses.

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