The instinct to just stop filing and let the company die is understandable and it is a costly mistake. Penalties accrue daily, and the consequences attach to you personally.
What happens if you do nothing
- Late filing fees on the annual return and financial statements accrue per day of default, and there is no upper limit in the way there once was.
- Under Section 164(2), a director of a company that has not filed financial statements or annual returns for three continuous financial years is disqualified for five years, and that disqualification attaches to every other company where they are a director.
- The Registrar may strike the company off anyway, but that does not erase the accumulated liability of the officers.
The strike off route
Section 248 allows a company to apply to the Registrar to have its name removed where it has not commenced business within a year of incorporation, or has not been carrying on business for two immediately preceding financial years and has not applied for dormant status.
- Clear all outstanding statutory filings and dues, and close bank accounts.
- Extinguish all liabilities. The company must have nil liabilities on the date of application.
- Pass a special resolution or obtain the consent of 75 percent of members by paid-up capital.
- File Form STK-2 with the prescribed fee, together with an indemnity bond, an affidavit from each director, a statement of accounts certified by a chartered accountant and not older than 30 days, and the resolution.
- The Registrar publishes a notice and, if there is no objection, strikes the name off.
Where strike off is not available
A company with outstanding liabilities, ongoing litigation, or a pending prosecution cannot use this route. Nor can certain companies excluded by the rules. If there are creditors who cannot be paid, the correct process is insolvency and liquidation under the Insolvency and Bankruptcy Code, 2016, or voluntary liquidation under Section 59 where the company is solvent and can pay its debts in full.
A company with outstanding liabilities, ongoing litigation, or a pending prosecution cannot use this route. Nor can certain companies excluded by the rules. If there are creditors who cannot be paid, the correct process is insolvency and liquidation under the Insolvency and Bankruptcy Code, 2016, or voluntary liquidation under Section 59 where the company is solvent and can pay its debts in full.
LLPs and firms
An LLP is closed by filing Form 24 for strike off, subject to similar conditions. A partnership firm is dissolved by deed and by giving public notice, and the registration should be updated.