To promote the Startup Ecosystem, MCA has rolled out Fast track company closure and to accelerate this in the Budget, C-PACE was introduced by the Hon'ble Finance Minister. The Ministry realised that complexity and volume of regulations are there in India, with a large number of laws and regulations that companies must comply with, covering areas such as corporate governance, taxation, labor laws, environmental regulations, and more. The complexity and volume of these regulations can make it difficult for directors to understand their obligations and ensure that the company is complying with all the relevant laws especially when the company which was incorporated is not functioning. This led to Penalties for Non-Compliance under Indian laws which have strict penalties for non-compliance, including fines, imprisonment, and other legal consequences. This way, it can create a significant burden for directors, who may be held personally liable for any violations committed by the company.
If you are also a director of any company and there is no any business in the Company, you can proceed to file STK-2 for the closure of the company subject to the requirements as laid down under section 248 of the Companies Act, 2013.
First time founders lack resources, as many small and medium-sized companies in India do not have dedicated legal and compliance departments, which means that the burden of ensuring compliance falls on the directors or founders. This can be particularly challenging for directors who may lack the necessary expertise or resources to navigate the complex regulatory landscape. Considering the same, the Compliance Calendar have penned down this article on the Company Closure in FTE Mode.
Directors have Limited Time and Attention as they have many responsibilities, including strategic planning, financial oversight, and managing stakeholder relationships. Ensuring compliance with all the relevant laws and regulations can be time-consuming and require significant attention, which can distract directors from other important tasks.
Therefore, compliance can be a burden to directors in India due to the complexity and volume of regulations, strict penalties for non-compliance, lack of resources, and limited time and attention. However, it is essential for companies to comply with all the relevant laws and regulations to maintain their legal status and reputation and ensure long-term success.
That Companies’ Directors have an “Option” that if the company is not operating or carrying on the business can choose to Closure of the Private Limited Company by filing STK-2 under FTE (Section 248 of the Companies Act 2013) and close down their operations.
Ministry of Corporate Affairs (MCA) in India has recently introduced a new online portal called the "MCA21 Version 3," which is designed to streamline various processes related to companies registered in India. One of the changes introduced with this new system is that all applications for strike off under Section 248 of the Companies Act, including STK-2 forms, will now be processed through the "STP (Straight Through Processing) mode."
Under this new system, the STK-2 applications will be automatically processed without any manual intervention, provided that all the requirements and conditions for striking off a company have been fulfilled. This is expected to make the process faster and more efficient, while also reducing the scope for errors or delays.
The process of Closure of the Private Limited Company involves the orderly liquidation of its assets, payment of its liabilities, and the distribution of any remaining assets to its shareholders. Company should proceed for closure under Section 248(1) of the Companies Act, 2013, which provides for voluntary Closure of the Private Limited Company. This section allows a company to Closure of the Private Limited Company its affairs if it is solvent and if the members of the company pass a special resolution or give Consent to that effect.
The process of closure of the Private Limited Company in India under section 248 of the Companies Act 2013 involves who takes over the assets of the company, pays off its liabilities and distributes the remaining assets to the members of the company as per their entitlement. The management of the Company is responsible for ensuring that the winding up process is carried out in a fair and transparent manner, and that the interests of all stakeholders are protected.
Ministry of Corporate Affairs (MCA) has introduced a procedure for striking off the name of companies from the Registrar of Companies (RoC) through Form STK-2.
» has failed to commence its business within one year of its incorporation
» was in operation but has since ceased to carry on any business or operations for a period of at least 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 of the Companies Act, 2013
» The First subscribers to the MOA have not paid the subscription which they had undertaken to pay at the time of incorporation and a declaration in form INC-20A to this effect has not been filed within 180 days of its incorporation under subsection (1) of section 10A (This is new clause Inserted by the Companies (Amendment) Act,2019 which shall be Effective from 02nd November 2018 [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019]
» Is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12 (This is a new clause Inserted by the Companies (Amendment) Act,2019 which shall be Effective From 02nd November 2018 [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019]
The company should also take care before filing STK-2 that-
» There are no assets or liabilities as of the date of the application for closure in STK-2.
» There are no outstanding statutory dues, such as income tax, sales tax, GST, excise duty, or other such obligations.
» There are no pending investigations or litigation going on
The company should meet all of these conditions, it may file an application in Form STK-2 with the Registrar of Companies (RoC) for the closure of the company and the striking off of its name from the register of companies by filing Form STK-2. The application in form STK-2 must be accompanied by the required documents, including a statement of accounts, an affidavit from the directors, and a consent letter from the shareholders.
The closure process for a Private Limited company under Section 248 of the Companies Act, 2013 involves -
Step 1: Board Resolution
The first step is to hold a meeting of the Board of Directors and pass a resolution for the closure of the company under Section 248 of the Companies Act 2013. The board must authorize a director to file an application under STK-2 for the closure of the company with the Registrar of Companies (RoC).
Step 2: Preparation of Documents
The authorized director must prepare the necessary documents like STK-3, STK-4, STK-8, Shareholders Consent, Bank Closure Certificates, the Latest filed ITR Copy, all Directors’ KYC or other documents required as a mandatory attachments to form STK-2 for filing the application with the RoC. This is a must that statement of accounts showing the assets and liabilities of the company up to the latest practicable date (within 30 days prior to the filing of STK-2).
Step 3: Filing of Application
The authorized director must file the form STK-2 for the closure of the company with the RoC (C-PACE now). The application must be accompanied by the necessary documents and the prescribed fees i.e INR 10,000.
Note: MCA had notified the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2019. Amended rules also included increase in the filing fee in respect of Form STK 2 from Rs. 5000 to Rs. 10000 w.e.f. 10 May 2019.
Step 4: Verification by RoC
After receiving the application, the RoC will verify the documents and if satisfied, will strike off the name of the company from its register. The strike-off will be published in the Official Gazette and the company will cease to exist as a legal entity.
Step 5: Objections/Re-submissions, if any
Any person who has an objection to the closure of the company may raise their objection within 30 days of the notice being issued in the Official Gazette.
Step 6: Final Strike-off/ Removal of Name from ROC record
If no objections are received, or if objections are received and resolved, the RoC will issue a final notice in STK-7 in the Official Gazette indicating that the name of the company will be struck off from the register of companies.
Step 7: Disposal of Assets and Liabilities
After the company has been struck off, any assets and liabilities remaining in the company's name will be disposed of in accordance with the provisions of the Companies Act 2013.
Central government of India has recently set up a new initiative called the "Corporate PACE (Partnership for Appropriate Closure of Enterprises)" or C-PACE, which aims to provide a framework for the quick and efficient closure of companies in India that are no longer viable or profitable or non-operational.
By this initiative, various stakeholders including government agencies, industry bodies, legal experts, and financial institutions will work together to facilitate the closure of non-viable companies in a timely and appropriate manner. This initiative s expected to help reduce the burden on the legal system and improve the “ease of doing business in India”.
The C-PACE framework will include various measures such as the development of standard operating procedures (SOPs) for the closure of companies, the creation of a centralized online platform for processing closure applications in form STK-2, the establishment of dedicated benches for handling closure cases, and the provision of training and capacity building for stakeholders involved in the process.
Overall, the C-PACE initiative is expected to enable quicker exits for non-viable companies, thereby promoting entrepreneurship and investment in India, while also protecting the interests of creditors, employees, and other stakeholders.
The process for closure of a company under Section 248 of the Companies Act, 2013 involves the preparation of necessary documents, filing of an application with the RoC, verification by the RoC, and publication of notices in the Official Gazette. Companies should ensure that they have complied with all the applicable laws and regulations before initiating the process of closure.
It is important to note that voluntary closure of the Company under FTE up is a legal process that involves several legal and financial requirements, and it is advisable to seek professional advice through choosing Compliance Calendar before initiating the process. The company needs to comply with various compliances before, during and after the closure of the private limited Company process, such as filing of STK-2 and documents with the Registrar of Companies (ROC) and settling all the liabilities and dues.
Filing Form STK-2 is no more difficult with help of the Compliance Calendar by companies in India to voluntarily strike off their names from the RoC if they have been inactive or non-operational for a period of two or more years and have no significant assets or liabilities. However, companies should ensure that they have complied with all the applicable laws and regulations before initiating the process of striking off their name.
