Voluntary Company Strike Off- The Lawful Way to Shut Down a Company

Usually, the incorporation of a company signifies the beginning of legal entity and perpetual succession. However not every company survive the test of time. Some never commence business, while some discontinue due to operational, financial, strategic or personal reasons. Irrespective of their activity, every company requires to comply with statutory obligations such as annual filings, meeting requirements and maintaining records, etc. For inactive companies all this statutory obligation is nothing but an unnecessary burden.

To provide a lawful exit, the Companies Act, 2013 (“Act”) introduced the concept of Strike off, a process by which the name of company is removed by Registrar of Companies (“RoC”) from the Register of Companies maintained by them. Strike off may be initiated by RoC or Company itself. Once struck off, the company ceases to exist as a legal entity, though the liabilities of its directors and members may continue. This article focuses on Voluntary Strike Off.

Voluntary Strike Off- Meaning

Voluntary Strike Off means when a company applies to RoC for removal of its name from the Register of Companies. Once struck off, the company ceases to exist as a separate legal entity, though liabilities of directors and officers for past acts remain enforceable.

Legal Provision

The procedure of Voluntary Strike Off is governed by Section 248(2) and 249 of the Act and Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016.

Section 248 (2) of the Act read with Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016.

A Company after extinguishing all its liabilities, by passing Special Resolution of member or by obtaining consent of 75% members (in terms of paid-up share capital) file an application in e-Form STK-2 along with fees of ten thousand rupees.

Section 249 of the Act

Voluntary application for Strike off shall not be made by the company if, at any time in the previous three months, the company-

• has changed its name or shifted its registered office from one State to another
• has made a disposal for value of property or rights held by it, immediately for the purpose of disposal for gain in the normal course of trading or otherwise carrying on of business

• has undertaken any activity except those necessary for applying for strike off or concluding its affairs.
• has made an application for compromise or arrangement which is pending before the Tribunal.
• is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.

Condition for Voluntary Strike Off

• The Company has failed to commence its business within one year of incorporation.
• The Company is not carrying on any business or operation for a period of two immediately preceding financial year.
• The Company has filed overdue financial statements (e. e-Form AOC-4) and annual returns (i.e. e-Form MGT-7/MGT 7A) upto the end of financial year in which it ceased business operations.
• The Company has closed all bank accounts and settled statutory dues.

Procedure of Voluntary Strike-Off

Preliminary Requirements

• The Company must ensure that all the outstanding dues, loans and statutory obligations are fully cleared.
• All company bank accounts must be officially closed with closure letters obtained from the bank.

Hold Board Meeting

Firstly, the Company must hold a board meeting of the company and pass the resolution for approving the strike off and authorizing the director to initiate the process.

Extinguishment of all Liabilities

Prior making an application before RoC, the company must clear all its outstanding liabilities. If there are no liabilities then a declaration must be made to this effect.

Holding an Extra-Ordinary General Meeting

The Company must hold an extra-ordinary general meeting to pass a special resolution to initiate the process of strike off.

Filing of e-form MGT-14

Once Special Resolution is passed, the company needs to file e-Form MGT-14 with RoC withing 30 days.

Filing of e-form STK-2

Form STK-2 form must be filed for making an application before RoC for voluntary removal of the Company’s name from the Register of Companies along with Rs. 10,000/- fees. Following the are attachments that needs to be attached with the form:

• Indemnity Bond (STK-3) duly notarised and executed by all the directors. [Rule 4(1)]
• Affidavit (STK-4) duly notarised and executed by all directors [Rule 4(1)]
• Certified True Copy of Board Resolution or Special Resolution, as the case may be.
• Consent by the shareholders [Section 248(2)].
• Statement of Accounts (STK-8) not older than 30 days and duly certified by a Chartered Accountant. [Rule 4(1)]
• Declaration by the Company that there is no pending litigation against the company. [Rule 4(1)]
• Affidavit under section 249(1) of the Companies Act, 2013.

Public Notice and Objections

After filing of form STK-2, RoC issues a public notice in Form STK-5A, published in the Official Gazette and in two nwspapers. This notice invites objections from public. In case no objections are received within 30days, the strike off process proceeds further.

Final Strike off Notification.

After being satisfied with the application and if no objection are received, the company’s name is removed from Register of Companies. A final notification is issued by RoC in Form STK-7. his is published in the Official Gazette and on the MCA portal, and the company is considered dissolved from the date of such publication.

Conclusion

Voluntary Strike-off under Section 248(2) of the Act offers a simple and lawful exit to those companies which are either inactive or no longer wish to continue their operations. It not only reduces the unnecessary compliance burden but also ensures that exit take place in legal and transparent manner. By adhering to the due process and filing requirements, companies can lawfully bring their existence to an end without undergoing lengthy winding-up proceedings.