What Are The Legal Steps To Dissolve A Company In India?

Dissolution of a company is a formal, legal process that apparently brings about the closing or winding up of a whole business entity. In the wake of India, the dissolution of the company is one long procedure involving various legal steps and methods.

Dissolution of a Company in India: Types

• Voluntary Dissolution: When the shareholders or members themselves dissolve the corporation, it is a voluntary dissolution.   This usually happens when a company has become dormant or there is no further business activity, or sometimes members just wish to have the company shut down.
• Compulsory Dissolution (Winding Up): A tribunal or court shall compulsorily wind up the company, whose inability to pay its debts, illegal activities, and failure to comply with the regulatory requirements of the company.
• Dissolution by Central Government: In certain cases, the government may dissolve the company when it does not comply with the statutory requirements or when it does not carry on business for a specific period.

Legal Steps to Dissolve a Company in India

Organize a Board Meeting

• The dissolution of a company entails the decision of the Board of Directors, so the first step is to convene the Board for deliberation and consensus on a resolution to initiate the dissolution process. 
• This particular resolution is a significant milestone. It empowers the directors to pursue subsequent measures of liquidation.

Approval from Shareholders

• Once that is done then the company will approach its shareholders. The dissolution must be pass by the company as a special resolution at a General Meeting. A special resolution requires that not less than 75% of shareholders shall have voted in Favor of dissolution.
• The shareholders should be given information on the position of the company financially and any other significant matters that may affect the dissolution decision such as liabilities and assets.

Filing with the RoC

• The corporation must submit the necessary paperwork to the Registrar of Companies within 30 days of enacting the special resolution. 
• The filing requirements include: 

• Form MGT-14: This is a form to be file with the RoC, reporting the passing of a special resolution. 
• Form STK-2: This form is submit to the RoC for an application regarding the removal of the company’s name from the Register of Companies.
• A copy of the special resolution pass by members will also be require to be submit to RoC.

Liquidate All Existing Liabilities and Debts

• Before a company’s dissolution can occur, the corporation must disencumber itself of all its liabilities by settling all loans, debts, employee dues, and dues that it owes with taxes. The process involves the discharge of all its debts as well as settling any loan from creditors. 
• It is imperative to state that the company cannot dissolve until it settles or completely clears all financial obligations. The law requires a company to ensure that there are no outstanding obligations or unresolved matters.

Submission of Financial Statements and Tax Returns

• The dissolution is carry out after the company makes sure that all its financial statements, such as the balance sheet, profit & loss account, and the rest, are in order before it takes action. True and fair view of the liabilities and assets should be represent in these statements to show the company’s financial position.
• The company shall submit final supplementary tax returns for all the taxes, from GST returns, income tax returns through to TDS returns, which were due and pending. It is expect that tax authorities verify the satisfaction of all tax dues. However, should there still be tax owe, or returns pending, such tax obligations and returns will need to be clear before further dissolution takes place.

Appointment of Liquidator (If Required)

• In case of voluntary winding up, one may need to appoint a liquidator to handle the entire liquidation procedure. These are selling of company’s assets, clearing debts from the company, and distributing the remaining assets among the shareholders. The liquidator plays an important role in ensuring the proper liquidation of the company’s assets as well as settling liabilities.
• The liquidator will be chose by the court or tribunal in the event of a mandatory winding up. In the case where the court orders liquidation, the company must submit a petition for it before the National Company Law Tribunal (NCLT), which will then appoint the liquidator.

Settle the Assets and Distribute the Remaining Assets

• The next step of the liquidator will distribute the remaining assets of a company to its shareholders after all liabilities are pay on behalf of the company. 
• Distribution will be make by entitling the shareholders to make them according to their rights and as per the articles of association of the company. The liquidator shall also ensure settlement of all the regulatory compliance issues before asset distribution takes place.

File a Declaration of Solvency (For Voluntary Winding Up)

• In case of voluntary dissolution, the company must file a Declaration of Solvency with the RoC. 
• In this declaration, the company’s directors declare that they have considered the financial position of the company and that they honestly believe it to be solvent and capable of paying its debts. A majority of the directors should sign this Declaration of Solvency.

Filing Final Documents with the RoC

• Final Financial Statements: The final financial statements for the period ending on the date of dissolution.
• Director’s Affidavit: This is a declaration or affidavit by the directors of the company that the dissolution was make as per the law.
• No Objection Letters: No Objection Certificates or NOCs from the company’s creditors, employees, or other stakeholders.

The RoC will then scrutinize the documents and, if satisfied by the compliance, strike off the name of the company from the Register of Companies.

Receive a Certificate of Dissolution 

• With all the documents reviewed and accepted, and once it has been determine that the company has complied with the procedures for dissolution, the Registrar of Companies will issue a Certificate of Dissolution to the company. 
• This means that the company has officially been dissolve, and its name has been struck off the RoC.

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