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Legal Steps for Company and LLP Closure in India

vivekranjan85

January 29, 2025

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When a business is no longer operational or viable, closing it legally is important to avoid penalties and compliance burdens. In India, the closure process differs for Private Limited Companies and Limited Liability Partnerships (LLPs). The process involves legal formalities under the Companies Act, 2013 and Limited Liability Partnership Act, 2008, respectively.

This guide explains the legal steps for shutting down both entities.

Closure of a Private Limited Company

A Private Limited Company Registration can be closed using any of the following methods:

1. Voluntary Striking Off (Fast Track Exit – FTE)
2. Compulsory Winding Up by Tribunal
3. Voluntary Winding Up
4. Closure Due to Inactivity

Voluntary Striking Off (Fast Track Exit – FTE) under Section 248

If a company has no liabilities and has not conducted business for two years, it can apply for striking off under Section 248 of the Companies Act, 2013.

Steps to Close a Company through Striking Off

1. Hold a Board Meeting
   • Pass a resolution to close the company.
   • Obtain consent from all shareholders.
2. Settle Liabilities
   • Pay off debts, taxes, and employee dues.
3. File STK-2 Form with the Registrar of Companies (ROC)
   • Attach necessary documents:
     • Board resolution
     • Indemnity bond (STK-3)
     • Statement of liabilities (STK-8)
     • Affidavit from directors (STK-4)
     • No dues certificate from tax authorities (if applicable)
4. Publication in the Official Gazette
   • The ROC will issue a public notice for objections, if any.
5. Company Name Removal
   • If no objections are raised, the company is removed from the register.

Compulsory Winding Up by Tribunal (Under Section 271 of the Companies Act, 2013)

A company can be compulsorily wound up by the National Company Law Tribunal (NCLT) in the following cases:

• The company is unable to pay debts.
• Business is conducted fraudulently.
• The company has violated the law.
• The company has not filed financial statements or annual returns for five years.

Steps for Compulsory Winding Up

1. Filing a Petition to NCLT
   • The petition can be filed by creditors, the company, regulatory authorities, or the ROC.
2. Appointment of a Liquidator
   • The Tribunal appoints an official liquidator to handle the process.
3. Verification of Assets and Liabilities
   • The liquidator assesses assets and liabilities before liquidation.
4. Settlement of Creditors & Stakeholders
   • Creditors and employees are paid from the company’s assets.
5. Final Hearing & Order by NCLT
   • If all conditions are met, NCLT issues a winding-up order.
6. Dissolution of the Company
   • The company is removed from the MCA records.

Voluntary Winding Up by Shareholders

A company may voluntarily wind up if its shareholders decide to close the business.

Steps for Voluntary Winding Up

1. Board Meeting & Special Resolution
   • Pass a special resolution with approval from 75% of shareholders.
2. Appointment of a Liquidator
   • A professional liquidator is appointed to handle assets and liabilities.
3. Creditors’ Meeting
   • Creditors must approve the winding-up process.
4. Clearance from ROC & Tax Authorities
   • Submit final accounts and obtain clearance from tax authorities.
5. Filing Winding-Up Application with NCLT
   • Submit all documents for Tribunal approval.
6. Dissolution Order
   • Upon approval, the company is legally closed.

Closure of a Limited Liability Partnership (LLP)

An LLP can be closed using the following methods:

1. Voluntary Striking Off (If Inactive for One Year)
2. Compulsory Winding Up by Tribunal

Voluntary Striking Off Under LLP Act, 2008

If an LLP has not carried out any business for at least one year, it can apply for closure under Rule 37 of LLP Rules, 2009.

Steps for Closing an LLP

1. Pass a Resolution for Closure
   • The partners must agree and pass a resolution.
2. Settle All Liabilities
   • Clear all pending loans, taxes, and liabilities.
3. Close Bank Accounts
   • Obtain a closure letter from the bank.
4. File LLP Form 24 with the Registrar
   • Submit the following documents:
     • Resolution of closure
     • Indemnity bond signed by partners
     • Affidavit confirming no business activity
     • Statement of assets and liabilities
5. Registrar Review & Striking Off
   • If there are no objections, the LLP is removed from records.

Compulsory Winding Up by Tribunal

The NCLT can order the winding up of an LLP in the following cases:

• LLP is unable to pay debts.
• Business is conducted fraudulently.
• LLP has failed to file financial statements for five years.

Steps for Compulsory Winding Up

1. Petition to NCLT
   • Filed by creditors, partners, ROC, or regulatory bodies.
2. Appointment of a Liquidator
   • NCLT appoints an official liquidator.
3. Asset Liquidation & Settlement of Creditors
   • The liquidator settles debts and obligations.
4. Final Hearing & Tribunal Order
   • NCLT passes the dissolution order.
5. Removal from MCA Records
   • The LLP is officially deregistered.

Key Differences Between Company and LLP Closure

Conclusion

Closing a Company or LLP closure in India requires proper documentation and legal compliance. If a business is inactive or unable to meet financial obligations, following the correct process can help avoid penalties. Voluntary striking off is the simplest method for inactive businesses, while winding up through NCLT is necessary when financial liabilities exist. Filing required forms and obtaining approvals from the Registrar of Companies (ROC) and NCLT are key steps in completing the process.