Many things are easier to get into than out of. Companies are in that list – it is easy to form them, but difficult to demolish. It is quite common for entities to form companies that were formed for a once conceived business, but that never took off and therefore, the company remains unused. Or it may be that the business ceased quite some time back and the company is lying like a non working company over the years. This is what is known as “defunct company”.
How to Close a Company in India:
After commencement of Companies Act 2013, compliance requirement of Companies has been increased. It is getting difficult for the non-working Private Company to continue with Active status because of high running cost under new Companies Act.
If the companies are nonworking, then it has two options to save cost:
1. Strike off Company (Under Section 560 of Companies Act with FTE scheme)
2. Get Dormant Status of Company (Under Section 455 of Companies Act 2013).
So, what is Fast Track Exit and Dormant Company?
Fast Track Exit mode is introduced by Ministry of Corporate Affairs for giving opportunity to non-operating companies for getting their names struck off from the records. It is an easier mode of closing non-operating companies at cheaper cost with lesser formalities under section 560.
Section 455 of Companies Act, 2013 talks about a New Provision “DORMANT COMPANY”. It is also termed as “ASSET SHIELDING CONCEPT”. A Dormant Company offers excellent advantage to the promoters who want to hold an asset or intellectual property under the company.
Checks for FTE:
This scheme come into force by circular No. 36/2011 and effective from 03rd July, 2011.
A. Company has not commenced any business activity or operation since incorporation; or
B. Company is not carrying over any business activity or operation for last one year before making the application of FTE.
C. Assets & Liabilities of company are nil.
D. Documents required for FTE & require to attach in form:
i. An affidavit from the all director
ii. An Indemnity Bond by every director (Mentioned any losses, claim and liabilities on the company, will be met in full by every director)
iii. A Statement of Account as on date not prior to more than one month preceding the date of filling of application in Form FTE, duly certified by Statutory Auditor or Chartered Accountant Whole time Practice.
iv. Copy of Board Resolution authorizing directors to file application Procedure for FTE.
PROCEDURE FOR FTE:
The Registrar of companies shall put the name of applicant and date of making the application under Fast Track Exit mode, on daily basis, on the MCA portal, giving thirty days time for raising objection, if any, by the stakeholders to the concerned Registrar;The ROC immediately after passing of time given and on being satisfied that the case is otherwise in order, shall strike its name off the Register and shall send notice under Section 560(5) of the Companies Act, 1956 for publication in the Official Gazette and the applicant company under this Scheme shall stand dissolved from the date of publication of the notice in the Official Gazette.
As per CLSS Scheme, the defaulting inactive companies, while filing due documents under CLSS 2014 can, simultaneously apply for striking off the name of company by filling e form FTE at 25% of the fee payable on form FTE. (But practically when I filed the form, fee was Rs. 5000 not 25%.)
Get the complete scheme on:
http://www.mca.gov.in/Ministry/pdf/Circular_362011_07jun2011.pdf
1. Any defunct company which has active status or identified as dormant by the Ministry of Corporate Affairs, may apply for getting its name struck off from the Register of Companies.
2. Any defunct company which is a Government company is to submit a ‘No Objection Certificate’ issued by concerned administrative Ministry or Department or State Government along with the application.
3. In case of foreign nationals and NRIs, indemnity bond and affidavit may be notarized as per the respective country’s law.
4. Fast track exit mode does not mention anywhere that a Company against which litigation is pending cannot apply for striking off the name of the Company from the Register maintained by the ROC. Hence, a Company against which litigation is pending can apply under fast track mode. Further, details of pending litigations are required to be filled up in eform FTE which has a reference in affidavit format too. Any pending litigations involving the company should be disclosed while applying under this Scheme; corporate shield for its usage at a later stage.
After above mention checks and preparation of documents, company can apply for FTE with ROC.
A Company eligible to apply for striking off its name needs to apply to Registrar of Companies in Form FTE which should be filed electronically on www.mca.gov.in and by making payment of Rs. 5000/ as the ROC fees. Form FTE, shall be certified by a Chartered Accountant in whole time practice or Company Secretary in whole time practice or Cost Accountant in whole time practice.
NOC is not required from Income Tax / Sales Tax / Central Excise / other Govt authorities. But all directors need to confirm that there are no dues pending against Company with any such authorities. And MCA will send letter confirming that Income Tax has no objection for striking off the name of the said Company.
[Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES, Company Secretary in Practice (Delhi) can be contacted at csdiveshgoyal@gmail.com or 08130757966]
