Procedure for Strike Off Private Company
Private companies are entities formed by individuals for various business purposes. However, there may come a time when a private company is no longer required or viable, and its owners decide to close it down. In such cases, the procedure for striking off the private company from the official records becomes necessary. This article provides a step-by-step guide on the procedure for strike off a private company, ensuring a smooth and legally compliant process.
I. Introduction
Definition of Strike Off Private Company
Strike off private company refers to the process of removing a company's name from the official register maintained by the Registrar of Companies. It is a formal way of closing down a private company that is no longer active or operational. Once a company is struck off, it ceases to exist as a legal entity.
Reasons for Striking Off a Private Company
There are several reasons why private companies opt for striking off. Some of the common reasons include:
- Dormant Status: The company has been inactive for a significant period and has no intention of resuming operations.
- Business Dissolution: The owners have decided to wind up the company due to business failure or any other reason.
- Mergers and Acquisitions: The company has been merged with another entity or acquired, making its existence redundant.
- Simplification: The owners want to reduce the administrative burden and costs associated with maintaining an inactive company.
II. Eligibility Criteria for Strike Off
Before proceeding with the strike off process, certain eligibility criteria must be met. These criteria ensure that the company is eligible for striking off and that the process is not misused.
Criteria for Applying for Strike Off
To be eligible for strike off, a private company must meet the following criteria:
- No Activity: The company should not have commenced business or should have ceased trading for at least three consecutive years.
- No Liabilities: The company should have no outstanding liabilities or debts.
- No Legal Proceedings: There should be no ongoing or pending legal proceedings against the company.
- No Disposal of Assets: The company should not have disposed of any property or assets worth significant value for the past three years.
Requirements for Strike Off Application
To initiate the strike off process, the company must fulfill the following requirements:
- Directors' Agreement: All directors of the company must agree to the strike off and sign a board resolution.
- Shareholder Approval: Shareholders must pass a special resolution supporting the strike off.
- Clearance of Liabilities: The company must settle all outstanding liabilities, including taxes, debts, and employee dues.
- Filing of Application: The company needs to submit an application for strike off to the Registrar of Companies, along with the necessary documents.
Procedure for Strike Off
The procedure for striking off a private company involves several steps to ensure compliance with legal requirements. It is crucial to follow each step carefully to avoid any complications.
Preparation and Documentation
- Board Resolution: The directors must convene a board meeting and pass a resolution approving the strike off. The resolution should include the decision to strike off, appointment of an authorized person to handle the strike off process, and authorization for signing and submitting the application.
- Shareholder Approval: Once the board resolution is passed, a general meeting of shareholders should be held to obtain their approval through a special resolution. The special resolution must be filed with the Registrar of Companies along with the application.
- Clearance of Liabilities: Before applying for strike off, all outstanding liabilities of the company, such as taxes, debts, and employee dues, must be settled. The company should obtain necessary clearances and no-objection certificates from relevant authorities, if applicable.
- Filing of Application: The company needs to prepare and file the strike off application with the Registrar of Companies. The application should include the necessary documents, such as the board resolution, special resolution, financial statements, and a statement of assets and liabilities.
Verification and Approval
- Review by Registrar of Companies: Upon receiving the strike off application, the Registrar of Companies will review the documents and verify the compliance with legal requirements. The registrar may seek additional information or clarification, if needed.
- Notice to Authorities and Creditors: The registrar will publish a notice in the official gazette and send individual notices to relevant authorities, such as tax authorities and creditors, informing them about the company's intention to strike off. These parties have the right to object within a specified period.
- Objections and Responses: If any objections are received, the registrar will consider them and provide an opportunity for the company to respond. The company must address the objections appropriately and provide necessary explanations or evidence to support the strike off.
Strike Off Completion
- Publication of Strike Off Notice: After the verification and resolution of objections, if any, the registrar will publish a final strike off notice in the official gazette, stating the striking off date.
- Removal from Registrar of Companies: On the specified striking off date, the registrar will remove the company's name from the register of companies. The company will no longer be deemed as an active entity and will cease to have legal existence.
- Consequences of Strike Off: Once struck off, the company cannot conduct any business or enter into any contracts. Any assets or property held in the company's name will become the property of the state or the relevant authority. The directors may also face disqualification from holding directorship in other companies.
Timeframe and Cost
The timeframe for completing the strike off process may vary depending on the complexity of the case and the efficiency of the relevant authorities. On average, it may take several months to complete the entire process.
As for the cost, there are certain fees associated with filing the strike off application and publishing notices in the official gazette. The specific fees may vary from jurisdiction to jurisdiction.
Alternatives to Strike Off
In some situations, striking off may not be the most suitable option. Here are two common alternatives:
- Voluntary Liquidation: If the company has significant assets or liabilities, voluntary liquidation may be a more appropriate option. This involves appointing a liquidator who will sell the company's assets, pay off its liabilities, and distribute the remaining funds to shareholders.
- Mergers and Acquisitions: If the company is no longer viable as a standalone entity but has valuable assets or intellectual property, it may consider merging with or being acquired by another company. This allows the continuation of the business under a different entity.
Conclusion
The procedure for striking off a private company involves several steps and requirements to ensure compliance with legal obligations. By following the outlined procedure and fulfilling the eligibility criteria, a company can smoothly navigate the strike off process. It is essential to seek professional advice and assistance to ensure a proper and legally compliant strike off.
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