Closure of Companies

Closure of companies in India involves the process of winding up or dissolving a company, either voluntarily or involuntarily. There are various circumstances under which a company may be closed, and the procedure for closure depends on the reason for closure and the type of company. Closing a company is an important legal process, and it is crucial to follow the prescribed procedures to avoid any legal liabilities or penalties.

Here are the key methods of closure of companies in India:

1. Voluntary Closure:

a- Voluntary Winding Up: A company can voluntarily wind up its operations when it is no longer able to continue its business or when its purpose has been fulfilled. This process is initiated by passing a special resolution in a general meeting of shareholders, followed by the appointment of liquidators to realize the assets and pay off the liabilities.

b- Strike Off: A dormant or inactive company can apply for strike off under Section 248 of the Companies Act, 2013. The company must ensure that it has no assets or liabilities and has not conducted any business activity for at least two consecutive financial years.

1. Involuntary Closure:

a-Winding Up by Tribunal: A company may be wound up by the National Company Law Tribunal (NCLT) if it is unable to pay its debts, or if the NCLT determines that it is just and equitable to wind up the company.

b- Fast Track Exit (FTE): Under Section 248A of the Companies Act, 2013, defunct companies with nil assets and liabilities can apply for fast track exit to the Registrar of Companies (RoC) for closure.

From the perspective of FEMA, the closure of companies primarily involves compliance with foreign exchange regulations. Companies that have foreign exchange transactions, foreign investments, or non-resident shareholders need to ensure the following while closing their operations:

Compliance with Reporting Requirements:

Companies should ensure that all required reports and filings with the Reserve Bank of India (RBI) and authorized dealers (banks) are up to date and filed as per the prescribed timelines.

Repatriation of Funds: If there are any foreign investments or remittances, companies should ensure the proper repatriation of funds as per FEMA regulations.

Clearance of Outstanding Liabilities: All outstanding foreign exchange liabilities should be cleared before closing the company.

The closure of companies in India involves a legal process that should be followed meticulously to avoid any legal issues or penalties. From the FEMA perspective, companies need to comply with foreign exchange regulations and ensure proper reporting and repatriation of funds while closing their operations. Seeking professional advice and guidance during the closure process will help companies navigate the complexities and ensure a smooth and legally compliant closure.

G Akshay Associates