Company Closure in Case of Company not doing any Business

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In India, a significant portion of registered companies as per government data are found to be inactive. These are companies that either never commenced business after incorporation or ceased operations over time. To address this growing concern, the Ministry of Corporate Affairs (MCA) has actively started invoking the provisions of Section 248(1) of the Companies Act, 2013 to remove such dormant companies from the Register of Companies by issuing formal notices.

Maintaining a company without any business activity not only serves no functional purpose but also creates unnecessary compliance responsibilities and the risk of penalties for directors. To ensure legal clarity and ease of doing business, the MCA provides mechanisms for voluntary closure, allowing companies to officially wind up their operations and avoid future liabilities.

This article outlines the need, procedures, and legal framework for closing a company that is no longer engaged in any business activity.

Why it’s important to close the inactive companies?

These are some of the reasons why we close the inactive companies.

Unnecessary compliance burden

When a company remains inactive for an extended period and does not opt for dormant status under Section 455 of the Companies Act, 2013, it continues to be treated as an active company in the eyes of law. As a result, it becomes liable to fulfill all statutory compliance requirements, such as filing annual returns, financial statements, holding board meetings, and maintaining statutory registers despite having no actual business operations. This creates an unnecessary compliance burden on the promoters or directors, both in terms of time and financial resources. To avoid such avoidable obligations, it is advisable for such companies to initiate closure through the proper legal process.

Escape from heavy penalties

If the company is inactive for a period of time and is not fulfilling its statutory filling requirement then they have to face a substantial financial penalty under company Act 2013. Even if company is not doing any business, it will not create any exception for them in this matter they still have to pay the compensations and fine under the company act 2013. Non compliance with these obligation results in the imposition of hefty late fees etc which is accumulate year after year.

Prevent Director Disqualification

Under Section 164(2)(a) of the Companies Act, 2013, if a company fails to file its financial statements and annual returns for three consecutive financial years, its directors become disqualified for a period of five years. This disqualification bars them from being appointed or reappointed as directors in any existing or new company during that time. As a result, disqualified individuals cannot incorporate a new company, continue to serve as directors in active companies, or represent any company for business-related purposes such as raising capital or securing bank loans. Such restrictions can severely impact a professional’s reputation and future business prospects. Hence, to avoid such serious consequences, promoters and directors of non-operational companies should consider voluntarily closing down the entity through proper legal channels.

Avoid Legal Complications in the Future

Letting a company sit idle without any business activity might not seem like a big deal at first, but it can lead to unexpected issues later on. If the company remains registered but isn't properly maintained, it could raise concerns during audits, investor checks, or if the promoters are planning to start a new venture. Unfiled returns, pending compliances, or even small defaults can attract penalties or legal notices over time. Also, during any financial scrutiny like applying for loans or participating in tenders the inactive status of such companies can come back to haunt the directors. That’s why it makes sense to officially close the company through legal means rather than leaving it unattended, which only increases the risk of complications down the line. 

Financial Relief

Running a company even when there’s no business happening still costs money. You have to pay for annual filings, audits, professional fees, and sometimes even penalties for missed deadlines. Inactive companies often end up spending without earning anything in return. Over time, these expenses can quietly pile up and become a burden. By choosing to close the company through proper legal channels, promoters can cut off these unnecessary costs and avoid wasting money on compliance that serves no real purpose. It’s a smart financial decision that brings clarity and peace of mind. 

If you'd like further details on why is company closure mandatory for Defunct Companies? 

Modes of company closure of inactive companies in India

Under section 248 of company law

When a company is no longer carrying out business, it can apply for closure under Section 248 of the Companies Act, 2013. However, the eligibility depends on how long the company has remained inactive. The law provides two primary grounds under which a company may apply for strike off: 

Strike Off When the Company Has Never Commenced Business

  • Under Section 248(1)(a) of the Companies Act, 2013, a company that has never commenced business since its incorporation is eligible to apply for strike off at any time, without the need to wait for two years. This provision is particularly helpful for companies that were incorporated but never actually became operational meaning they did not issue any invoices, conduct financial transactions, or even open a business bank account. In such cases, the company can apply for closure even within the first year of registration. To proceed, the company must submit an affidavit from its directors confirming that no business activity has ever taken place, along with a statement of accounts reflecting nil transactions. These documents, along with the prescribed attachments under Form STK-2, must be filed with the Registrar of Companies for formal closure of the company.

Strike Off When the Company Has Not Been Operational for Two Years

  • Under Section 248(1)(c) of the Companies Act, 2013, a company that has previously been active but has not carried out any business or operations for the last two financial years is eligible to apply for strike off. This condition applies to companies that may have issued invoices, entered into contracts, or conducted banking transactions in the past, but have now remained completely inactive meaning no revenue, no business-related transactions, and no ongoing operations for two consecutive years. To apply for strike off in this case, the company is required to file Form STK-2 along with key documents such as a statement of accounts not older than 30 days (certified by a Chartered Accountant), board and shareholder resolutions, and an affidavit and indemnity bond from all directors. This route ensures that companies which are no longer functioning can legally and formally close down, provided they meet the conditions of prolonged inactivity and have no outstanding liabilities. However, companies that have been inactive for only one year are not eligible under this provision and must either wait to complete the second year of inactivity or consider alternate routes such as applying for dormant status under Section 455.

Document required for striking off the company under section 248

When a company wishes to apply for strike off under Section 248 of the Companies Act, 2013, it must file Form STK-2 along with several essential documents that establish its eligibility for closure. First, the directors are required to submit an affidavit confirming that the company has either never started any business activity or has been inactive for the last two financial years. An indemnity bond must also be provided by each director, assuring that they will bear responsibility for any future liabilities that may arise. A statement of accounts, prepared and certified by a Chartered Accountant and not older than 30 days from the date of application, must reflect the company’s current financial position. Additionally, the application should include copies of the board resolution and special resolution passed by shareholders approving the decision to close the company. Identity and address proofs of all directors such as PAN and Aadhaar are also required. If the company holds any government registrations like GST, proof of cancellation or surrender is advisable to submit. Ensuring that all documents are accurate, complete, and properly signed is important to avoid any delay or rejection by the Registrar of Companies.

Process of striking of under section 248 of company law

These are the steps and procedure that involves under section 248 of company law 2013

Conduct Board Meeting & Pass Resolution 

The process begins with a meeting of the Board of Directors where a resolution is passed to initiate the strike off process. In this meeting, the directors must formally approve the closure of the company and authorize one of the directors to carry out all necessary legal steps, including the filing of the application with the Registrar of Companies (ROC).

Clear All Outstanding Liabilities 

Before proceeding with the strike off, the company must ensure that all its financial obligations are met. This includes repaying any outstanding debts, taxes, or dues. If there are any creditors, proper arrangements must be made to settle their claims so that no liabilities remain at the time of applying for closure.

Obtain Shareholders' Approval 

Once the board has approved the proposal, the company must call a general meeting of its shareholders to seek their consent. A special resolution is required for this purpose, and it must be passed by at least 75% of the shareholders (by value of shareholding). After the resolution is passed, it needs to be filed with the ROC in e-Form MGT-14 within a period of 30 days.

Get NOC from Regulatory Authorities (if applicable) 

If the company is registered or regulated under any government authority such as the Goods and Services Tax (GST) Department, Reserve Bank of India (RBI), or Securities and Exchange Board of India (SEBI), then it must obtain prior approval or a No Objection Certificate (NOC) from the concerned authority before applying for strike off.

File Form STK-2 with ROC 

After completing all the above steps, the company can proceed to file Form STK-2 with the ROC through the Ministry of Corporate Affairs (MCA) portal. This form must be submitted along with required documents, including affidavits and indemnity bonds from all directors, a statement of accounts certified by a Chartered Accountant (not older than 30 days), board and shareholder resolutions, and identity/address proofs of the directors. A government fee of Rs.10,000 is also payable at the time of filing.

Frequently Asked Questions (FAQs)

Q1. What is Section 248 of the Companies Act, 2013? 

Ans. Section 248 provides the legal framework for the removal of a company's name from the Register of Companies by the Registrar of Companies (ROC). It can be initiated either by the company itself (voluntary strike off) or by the ROC (suo motu) if certain conditions are met.

Q2. When can a company apply for strike off under Section 248? 

Ans. A company can apply for strike off if: 

  • It has not commenced business since incorporation, or

  • It has not carried out any business or operation in the last two financial years and has not applied for dormant status under Section 455.

Q3. What is the procedure to strike off a company under Section 248? 

Ans. The company must: 

  • Conduct a board meeting and pass a resolution.

  • Clear all liabilities and obtain shareholders' approval through a special resolution.

  • File Form STK-2 with required documents and fees.

  • ROC reviews and, if satisfied, publishes a public notice before removing the company’s name.

Q4. Can a company apply for strike off within one year of incorporation? 

Ans. Yes, but only if the company has never commenced any business since incorporation. This is allowed under Section 248(1)(a).

Q5. What form is used to apply for strike off? 

Ans. The application must be made in Form STK-2 through the MCA portal, along with a government fee of Rs.10,000 and supporting documents.

Q6. What documents are required for filing Form STK-2? 

Ans. Some of the key documents include: 

  • Affidavit and indemnity bond from all directors

  • Statement of accounts (not older than 30 days, certified by a CA)

  • Board and shareholder resolutions

  • Identity proof of directors

  • NOC from regulatory authorities (if applicable)

Q7. Can the ROC strike off a company without its consent? 

Ans. Yes. Under Section 248(1), the ROC can initiate suo motu strike off if it finds that: 

  • The company has not commenced business within one year of incorporation, or

  • The company has not filed annual returns or financial statements for two consecutive years.

Q8. What is the difference between strike off and winding up?

Ans. Strike off is a simplified method for closing a company with no liabilities.

  • Winding up is a more detailed and formal legal process, usually involving liquidation of assets, suitable for companies with debts or ongoing obligations.

Q9. Can a company be revived after strike off? 

Ans. Yes, an application for revival can be filed with the National Company Law Tribunal (NCLT) within 20 years of the name being struck off, if it is found that the company was struck off without valid grounds.

Q10. Is GST cancellation mandatory before strike off? 

Ans. While not always mandatory, it is strongly advisable to surrender or cancel the company’s GST registration (if applicable) to avoid complications during or after the strike off process.

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