Liquidation of a Company In India
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Liquidation of a Company – Overview
Liquidation of a company refers to the process of selling off the company’s assets and using the proceeds to pay off its debts and liabilities. Once all debts and liabilities have been paid, any remaining assets are distributed to the shareholders. Liquidation can occur voluntarily, when the company’s shareholders and directors decide to close the company, or involuntarily, when the company is forced to close due to bankruptcy or other financial difficulties. Liquidation is also known as “winding up” a company.
Checklist for Winding up of Company
The company’s board of directors must meet to approve the decision to dissolve the company. It is recommended to hire a professional liquidator or insolvency expert. The company should also request a no-objection certificate from the Income Tax Department. Before beginning the process of closing the company, a notification must be sent to the Insolvency and Bankruptcy Board of India within one week of passing the resolution. The entire process of closing the company should be completed within 12 months of the start of the liquidation process.
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List of documents needed for Liquidation of a company in India
For the liquidation of a company in India, the following documents may be required:
- PAN (Permanent Account Number) card for the business
- Statement showing the closure of the business’s bank account
- A legally recognized indemnification bond signed by the directors
- The most recent financial statement for the business
- Financial accounts, including a list of all the company’s assets and liabilities that have been reviewed by a Certified Accountant
- Evidence that the majority (at least 3/4) of the board members have approved the resolution to liquidate the company
- A request to change the company’s name.
Benefits of Liquidation of Company
Liquidation of a company, also known as winding up, is the process of bringing a company’s operations to an end and distributing its assets to its creditors and shareholders. There are several potential benefits to liquidating a company, including:
1. Debt resolution: Liquidation allows a company to pay off its debts and liabilities, providing relief to creditors who may not have been able to recover their money if the company had continued to operate.
2. Asset distribution: Liquidation allows the assets of the company to be sold and the proceeds distributed to shareholders and creditors according to the terms of the liquidation plan.
3. Closure of business: Liquidation provides a way for a company to officially close its doors and end its operations, which can be beneficial for shareholders and stakeholders who wish to move on to other ventures.
4. Tax benefits: In some cases, liquidation may provide tax benefits to the shareholders of the company, depending on the specific circumstances of the liquidation.
It is important to note that liquidation is a complex process and may not always be the best option for a company. It is advisable to seek the guidance of a professional, such as us Team Advisource.
Two methods for closure of a company
1. Winding Up
– Compulsory Winding up of a Company
This is a process initiated by the company’s directors or shareholders, who decide to wind up the company’s operations and distribute its assets. Voluntary liquidation can be further divided into two categories: members’ voluntary liquidation and creditors’ voluntary liquidation.
– Voluntary Winding up of a Company
This is a process initiated by a creditor, shareholder, or the National Company Law Tribunal (NCLT) when the company is unable to pay its debts or meet its obligations. Compulsory liquidation is typically used as a last resort, when all other options for resolving the company’s financial difficulties have been exhausted.
2. Striking-Off
Striking off a company is a process by which a company is removed from the register of companies maintained by the Ministry of Corporate Affairs (MCA). This effectively dissolves the company and brings its operations to an end. Striking off a company is generally only possible if the company is no longer carrying on business and has no outstanding liabilities. In order to strike off a company, the directors must first apply to the MCA for permission to do so. If the MCA approves the application, the company will be struck off the register and a notice of the strike-off will be published in the Official Gazette.