Business Incorporation & Compliance

When a company or a Limited Liability Partnership (LLP) is no longer operational, it is crucial to formally close the entity to avoid continuous compliance burdens and penalties. In India, the striking off process under the Companies Act, 2013 and the LLP Act, 2008, offers a simplified exit route compared to formal liquidation.

1. Striking Off vs. Liquidation

While often used interchangeably, these terms represent different legal stages:

• Striking Off: This is the administrative process of removing a company’s name from the official Register of Companies. It is ideal for defunct or inactive companies with no assets or liabilities.
• Liquidation/Dissolution: Liquidation is the comprehensive process of winding up affairs—selling assets and paying creditors. Dissolution is the final legal death of the company after this process is complete.

2. Striking Off a Company (Section 248)

The Registrar of Companies (ROC) can initiate this process suo motu (on its own motion), or the company can apply voluntarily.

A. Grounds for ROC Action

The ROC may initiate strike-off if:

1. The company fails to commence business within one year of incorporation.
2. The company has not carried out business for the two preceding financial years and hasn't applied for "Dormant" status.
3. Subscribers to the Memorandum (MOA) haven't paid their subscription money within 180 days.
4. Physical verification reveals the company is not functioning at its registered office.

B. Voluntary Application by the Company

A company can apply for closure using Form STK-2 (Fee: ₹10,000).

The Procedure:

1. Board Approval: Pass a board resolution to authorise the closure and a specific director to file the forms.
2. Extinguish Liabilities: All debts must be paid off before filing.
3. Shareholder Consent: Pass a Special Resolution (75% majority) in an Extraordinary General Meeting (EGM).
4. Documentation:
• Form STK-3: Indemnity Bond (signed by directors).
• Form STK-4: Affidavit (signed by directors).
• Form STK-8: Statement of Accounts (certified by a CA, not older than 30 days).
5. Regulatory NOC: If regulated by bodies like RBI or SEBI, their approval is mandatory.

3. Restoration of Company Name

If a company's name is struck off, it can be restored via an appeal to the National Company Law Tribunal (NCLT):

• By the Company/Member/Creditor: Appeal must be filed within 20 years of the strike-off notice if the company was active or if it is "just" to do so.
• By the ROC: If the ROC finds the name was removed based on false information, they can apply for restoration within 3 years.

4. Key Restrictions

A company cannot apply for voluntary strike-off if, in the last 3 months, it has:

• Changed its name or shifted its registered office to another state.
• Made a disposal for the value of property or rights held.
• Applied to the Tribunal for a compromise or arrangement.
• Been engaged in any other activity except what is necessary for the application.

5. LLP Closure Process (Form 24)

Closing a Limited Liability Partnership (LLP) is governed by the LLP Act and is similar to the company process, but involves different forms.

The Procedure:

1. Cessation of Business: The LLP must not have carried out business for at least one year.
2. Consent: Obtain written consent from all partners.
3. Filings: All pending Annual Returns (Form 11) and Statements of Account (Form 8) must be filed up to the date of cessation.
4. Form LLP-24: Filed with the ROC along with:
• An affidavit and indemnity bond from all designated partners.
• A statement of accounts (Nil assets/liabilities) certified by a CA.
• Acknowledgement of the latest Income Tax Return.

Restoration Note for LLPs

Unlike companies, there is no direct provision for "restoration" of an LLP in the LLP Act, similar to Section 252 of the Companies Act. If an LLP is struck