Winding up is the process that officially closes the books, dissolving a company, where all its assets are liquidated to pay off debts, and any remaining assets are distributed among shareholders. Still, it's more than just a formality. The goal is to end the company's existence legally and formally. It's a comprehensive process that involves multiple legal steps and is often more complex than striking off.
Is your company facing financial difficulties or simply looking to close its doors? The types of winding up you choose will dictate how this chapter ends.
Voluntary winding up is initiated by the company's shareholders or creditors when the company decides to cease operations. For instance, if a startup chooses to shut down because it can no longer sustain operations, the founders may opt for voluntary winding up.
Compulsory Winding Up: This is ordered by the court when the company cannot pay its debts, is involved in fraudulent activities, or is conducting its affairs in a manner prejudicial to the interests of the public or its shareholders.
Winding Up by Tribunal: This is a legal procedure where the National Company Law Tribunal (NCLT) orders a company to wind up due to reasons like insolvency, fraudulent conduct, or a deadlock among the company's management.
Striking off is a relatively simpler process compared to winding up. It involves removing a company's name from the Register of Companies. The company ceases to exist as a legal entity, but unlike winding up, it does not involve liquidating assets to pay off debts. The company is merely struck off the records
Not all companies are struck off for the same reasons. From voluntary choices to regulatory actions, let’s know the types of striking off that can bring a company to its end.
Voluntary Striking Off: A company may apply to the Registrar of Companies (RoC) for striking off its name from the register if it has no liabilities and is not carrying out any business activities. For example, an inactive company may choose this route for several years to save on compliance costs.
Striking Off by RoC: The RoC can strike off a company if it fails to commence business within a year of incorporation or has not been active for two consecutive financial years.
Confused between winding up and striking off? These key differences will help you understand which path is right for your business.
As you consider the best path to close your company, understanding the distinctions between winding up and striking off is crucial. Though similar in their end goal, these processes serve different purposes and involve unique steps. Whether your company needs a comprehensive closure through winding up or a simpler exit via striking off, knowing these key differences ensures you make an informed, strategic decision that aligns with your business’s specific circumstances.
Q1. Can a company be revived after it has been struck off?
Ans1 Yes, a company can be revived after being struck off by applying to the NCLT, provided the application is made within 20 years from the date of striking off.
Q2. What happens to the company's liabilities during the striking-off?
Ans2. Liabilities are not discharged when a company is struck off. Creditors can still seek recovery, and directors may be personally liable.
Q3. How long does the winding-up process typically take?
Ans3 The winding-up process can take several months to a few years, depending on the complexity of the company's affairs.
Q4. Is there any government fee involved in the striking-off process?
Ans4. Yes, a nominal fee is involved when applying for striking off through the Simplified Proforma for Incorporating Company Electronically (SPICe).
Q5. Can a company wind up voluntarily if it has outstanding debts?
Ans5. No, the company must settle its debts or have a plan approved by creditors for debt settlement before it can wind up voluntarily.
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