Starting a business can be an exhilarating journey that fills you with confidence, encouragement and thoughts about your future. Not every business idea will end up being implemented or operated. Thousands of entrepreneurs register Private Limited Companies each year throughout the country of India, but due to various reasons such as lack of funding, delayed management, market conditions or a change in vision, they never actually begin conducting business as intended. If your company has been inactive for at least three years, you are likely not alone as there are thousands of founders each year who experience the same situation - no bank accounts, no transactions, no business activity. But there is one important point to remember: even if your company has not been active since the day it was registered, it still has legal compliance responsibilities and consequences associated with failure to meet those obligations. The safest and most practical approach is to properly close your company in accordance with the Companies Act of 2013. This article is intended to serve as a comprehensive guide which will provide you with a thorough understanding of the entire process of closing a Pvt Ltd. Company including, but not limited to, the formal procedures required for closing an existing Private Limited Company, the documents needed to effect closure, the timeframes from registration through closure, and what you may expect when working with a professional service provider who specializes in closing a Private Limited Company.
Why Close a Pvt. Ltd. Company If No Business Was Conducted?
Your company is considered to be a legally registered company under the Companies Act of 2013, even if you do not conduct business, do not open a bank account, and do not earn revenue.
This means that your company must comply with mandatory filings for each year, such as:
If no compliance is made for three years, then your company accumulates:
Therefore, if you do not want your company to be inactive, the most practical and efficient step is to legally close your private limited company in India to avoid future issues.
Can an Inactive Company Without a Bank Account Be Closed?
Yes, in order to apply for the closure of a company that has not opened a bank account and has not conducted any business, a Fast Track Exit (FTE) or Strike-Off option can be pursued by submitting Form 2, which is known as an STK-2 form. Additionally, as a result of having no business activity for more than a few years, many of these companies are excellent candidates for using the strike-off option because they offer many benefits, including:
• Faster Processes
• Easier Processess
• Cost Effective
• Require Fewer Documents
As such, the strike-off option is the preferred choice of most professional services firms who provide Close Private Limited Company Services in India.
Why You Must Take Action: Even an Inactive Private Limited Company Has Legal Responsibilities
Founders often think their company is dormant because they didn’t have a business or bank account. This is incorrect.
When a Pvt. Ltd. company is incorporated, it is an entity registered with the Ministry of Corporate Affairs (MCA). Even if it is inactive or dormant, a Pvt. Ltd. company has compliance obligations that must be adhered to. These include:
If none of these obligations are fulfilled for a period of three years, your Pvt. Ltd. company will be deemed non-compliant and will likely incur both late penalties and notices from the MCA.
Therefore, rather than maintain a company that is not conducting business or continuing to grow while exposing yourself to compliance obligations associated with an active Pvt. Ltd., it is better to close the company through proper legal channels.
Best Option for You: Strike Off the Company Under Section 248
Because your business has:
Your business is eligible for strike-off according to section 248(2) of the Companies Act of 2013. The ease with which to strike-off a private limited company is by far an easier process as compared to closing a business that has commenced operations.
What is strike-off?
When the Ministry of Corporate Affairs (MCA) strikes-off your company's name from the Register of Companies (ROC), your company is no longer legally recognized.
At this point,
This is the easiest, most cost-effective, and quickest method to close a private limited company without having conducted any business activities whatsoever.
Eligibility for strike-off under section 248
For a company to be eligible for strike-off under Section 248:
Since your company has never had any business operations, it seamlessly meets the above criteria.
Why Fast Track Exit (Strike Off) Is the Best Method
Many entrepreneurs worry that closing a company will be complicated. But with the Fast Track Exit process, things are much simpler compared to liquidation.
Here’s why the closure of a Private Limited Company through strike-off is preferred:
Benefit
Strike Off (STK-2)
Time Required
3–6 months
Cost
Very economical
Documents Required
Minimal
Suited For
Inactive or non-operational companies
Bank Account Required?
No
Complicated Audit or Filings?
No, if no operations were done
Step-by-Step Process to Close a Private Limited Company in India When No Business Was Conducted
Here are the steps to complete the strike-off process in chronological order with brief descriptions of each.
Step 1- Board Meeting
The first step is to hold a board meeting where the board members can pass a resolution proposing that your company be struck off. In this resolution, you will need to state that you have authorized one board member to file strike-off documents with the Ministry of Corporate Affairs (MCA).
Step 2- Shareholder Consent
Once the board has passed the resolution for your company to be struck off, you will need to hold a general shareholder meeting where at least 75% of the shareholders agree to the strike-off. When this is done, the shareholders will then pass a special resolution.
Step 3- Preparing Documents to File for Strike-Off
After passing the special resolution, you will need to prepare the following documents to file for the strike-off (Form STK-1):
• the board resolution for the closure;
• the special resolution for the closure;
• affidavit by the directors on Form STK-4;
• indemnity bond on Form STK-3;
• a statement of accounts (no older than 30 days);
• a declaration of no business activities;
• proof of identity/address of directors
It is always best to have a qualified professional service to help you prepare these documents correctly so that they will not get rejected.
Step 4: File Form STK-2 With the MCA
This is the most important step. Form STK-2 must be submitted along with all required documents and government fees.
Once filed, the registrar will:
If no objections are raised, MCA proceeds with the final strike-off.
Step 5: MCA Removes the Company’s Name
Once the Registrar approves the application:
This completes the close of a Private Limited Company through the fastest and cleanest method.
How Long Does It Take to Close a Private Limited Company in India?
The time frame for every case of a strike off varies between three to six months and is determined by several factors. These include:
• Accuracy of all documentation,
• Speed which the ROC does their verification,
• Any compliance issues that may exist,
• Internal processing times within the MCA
If a professional service is employed it will mean that the timeframe is reduced dramatically.
Why It’s Necessary to Close an Inactive Company Instead of Ignoring It
In general terms, having an inactive corporation may seem relatively harmless but it can create serious long-term issues for an individual:
1.Penalties Continue to Accumulate
The ROC places substantial fines on companies that do not file their annual returns; these fines are:
• ₹100 per day for each form that is not submitted (with no upper limit)
And these fines will continue to accrue until the corporation has been legally closed.
2. Directors Could Become Disqualified
Any director of a corporation that does not file their returns for three consecutive years could face the risk of being disqualified from acting as a director for a period of five years.
3. Companies Are Subject to Close Scrutiny from the MCA
The MCA closely monitors companies that are inactive, they may:
• Send formal notices
• Strike off the corporation suo-moto
• Hold directors liable for all actions of the corporation
4. Difficulty Registering Another Company
If a director has been removed for non-compliance, they will find it very difficult to register or manage another corporation.
As a result of these issues, it would be prudent to consider voluntarily striking off an inactive corporation prior to experiencing these effects.
Benefits of Closing a Pvt. Ltd. Company That Never Started
One of the most significant benefits of closing a non-operational company is:
* No future penalties or fines - You can completely cease your compliance-related obligations at that time.
* Directors will no longer hold liability - Once the company has been closed by striking off, directors’ obligations cease.
* No more notices from the MCA - You will no longer receive additional scrutiny or legal pressure as a result of ROC filings.
* Peace of mind - Your company will have been closed properly from a legal/professional perspective, without any complications.
* Clean records for future companies - You can now create new businesses with no outstanding compliance requirements.
What If You Haven’t Filed ROC Returns for Three Years?
Most people are concerned with pending ROC filings, particularly when no activity has occurred within the company. The positive news is that inactive companies without any operations do not need to submit their past ROC filings with respect to the STK-2 form. That is to say, if you did not file AOC-4 or MGT-7 for up to three years, there is still no impediment to your proceeding with closure. The MCA could potentially ask for a NIL Statement of Accounts, but this is generally very straightforward to prepare.
What Happens If You Ignore Closing the Company?
Failure to take action to close the business formally, MCA will have the ability to take action under section 248 (1). Below is a list of consequences if this occurs:
1. You may receive a disqualification, as a company director, for 5 years.
2. Future filings will incur late fees.
3. The company may receive a show-cause notice.
4. There will be complications and legal issues if you wish to register as a business again.
5. You may have a hard time finding another company to become a director of.
It is always better to take action sooner, rather than later and not to ignore the status that the company is inactive.
Common Reasons Entrepreneurs Choose to Close Their Pvt. Ltd. Company
Some of the more common reasons that businesses may be closed are:
• Change in business plan
• Lack of financial funding
• No business activity since incorporation
• Recurrent compliance to red tape
• High cost to operate a business
• Directors changed to employee status
• Incorrect/inadvertent incorporation without proper planning
Regardless of the reason, if done correctly, closing a business is a simple and straightforward legal process.
Common Mistakes People Make When Closing a Pvt. Ltd. Company
Several companies have received delays or denials when applying for their certificate of automatic closure due to the following factors:
1. Submitting incorrect or incomplete documentation.
2. Failing to produce a proper NIL Statement of Accounts.
3. Failing to obtain the necessary Corporate or Shareholder Resolutions
4. Filing the STK-2 application without establishing the eligibility.
5. Attempting to close the company without the assistance of a qualified business advisor/ accountant.
Taking action to prevent these issues will enable your company to become closed without any unnecessary issues in going forward.
What Happens If You Don’t Close the Company?
It is critical to prevent your company from remaining registered and classified as inactive. The following negative consequences can be incurred by allowing your company to remain an active entity:
Continuing the accumulation of penalties.
The Ministry of Corporate Affairs (MCA) imposes hefty fines on any entity each year that fails to file annual returns.
Directors will be disqualified.
As mentioned in Section 164 of the Companies Act, any director who is not in compliance can be banned from holding that position for 5 years.
Receiving a legal notice.
Companies not complying with the due date will be sent a ROC notice from the MCA.
Future incorporation appears to be excessive.
The Ministry of Corporate Affairs requiring all future incorporations to undergo additional scrutiny.
PAN & GST issues.
Pend a company being classified as inactive, it will be flagged by the compliance systems.
It would be prudent for all inactive companies to file STK-2 and obtain their Certificate of Closure prior to being found non-compliant.
Conclusion
Many entrepreneurs believe closing down an inactive or non-operational Private Limited Company to be complicated. However, this could not be further from the truth. If your private limited company has not opened a bank account or conducted any type of business activity for a period of three years, the most efficient method available to legally close your entity down, and to relieve you of any future compliance requirements, would be by using the Fast Track Exit Process, by completing STK-2. Following the correct processes will allow you to close your private limited company smoothly, without incurring any penalties or complications, while maintaining a clean record for your future businesses. By utilizing a reputable Close Private Limited Company Service, you simplify both the documentation and compliance processes, allowing for the efficient and expedient processing of your application. Taking prompt action will help you avoid unnecessary legal issues in the future and maintain a hassle-free business experience.
Frequently Asked Questions (FAQ)
1. Can I close my Pvt. Ltd. company without a bank account?
Yes. If the company never opened a bank account and never conducted business, it is eligible for strike-off under Section 248.
2. Do I need to file past ROC returns before closing the company?
No, inactive companies applying under STK-2 do not need to complete past filings if there were no transactions.
3. How long does it take to close a Private Limited Company in India?
Generally, 3 to 6 months, depending on documentation and MCA processing time.
4. What if I don’t close my inactive company?
Directors may face penalties, disqualification, and notices from MCA.
5. Do all directors need to sign the affidavits and indemnity bond?
Yes, all directors must sign the required documents to complete the closure process.
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