Avoiding Legal Consequences: How to Exit a Pvt. Ltd. Company in India
Starting a private limited company in India can be a significant milestone, but what happens if you or your co-founder are unable to actively manage the company and neglect to close it officially? This scenario is all too common, but there are steps you can take to resolve the situation without facing any legal repercussions. In this article, we will explore the FTE Scheme, a fast track exit process designed for small businesses that need a swift and legal way to close their operations.
The Impact of Neglecting a Pvt. Ltd. Company
When an entrepreneur or co-owner leaves a private limited company inactive, various issues can arise. The company may fail to file the required annual returns, neglect to conduct audits, or even get stuck off by the Registrar of Companies (RoC). Such actions can result in penalties and legal challenges that can hamper your business reputation and personal finances.
The FTE Scheme: A Solution for Neglected Companies
For those who find themselves in such a situation, there is a ray of hope in the form of the FTE Scheme, which stands for Fast Track Exit Scheme. This initiative is provided by the Ministry of Corporate Affairs (MCA) and is designed to assist small and medium enterprises in winding down their operations without the need for lengthy and costly legal processes.
The Benefits of the FTE Scheme
There are several advantages of opting for the FTE Scheme:
Time Efficiency: The process is much faster compared to regular winding up procedures. It can be completed within 30 to 45 days, ensuring that the company is officially closed with minimal disruption.
Cost-Effective: The FTE Scheme is a cost-effective solution, as it eliminates the need for extensive legal and accounting fees associated with standard winding up procedures.
No Legal Liabilities: By following the FTE Scheme, you can avoid any potential legal liabilities that may arise from neglecting the company operations.
Requirements to Opt for the FTE Scheme
To qualify for the FTE Scheme, your company must meet the following criteria:
The company must be in good standing, with all outstanding statutory compliances, except for not submitting annual returns.
No prosecution proceedings or investigations related to the company are pending.
The company has not been struck off or deregistered by the Registrar of Companies.
The company must have been inactive for a period of at least one year.
Steps to Follow for FTE Scheme
Here are the steps to follow if you wish to exit your company through the FTE Scheme:
Check Compliance: Ensure that your company has not missed any other statutory compliances, apart from the annual returns.
Contact a Chartered Accountant (CA): A CA can guide you through the process and ensure that all necessary documents are in order. A recommended CA is Bhavesh Savla, who can provide professional assistance in this regard.
Filing for FTE Request: Submit an application for the FTE Scheme to the MCA. The application should include all necessary documents and must be signed by both directors of the company.
Wilson Trust Formation: A public trust called “Wilson Trust” must be formed as per the FTE Scheme guidelines. The trustee of this trust will handle the closure process.
Audit Report: An auditor will prepare an audit report confirming that the company has been defunct for at least one year and ceasing to carry on any business.
Board Resolution: A board resolution must be issued for winding up the company and for appointing a trustee for the trust.
Annexure F: Filing of the highest bidder details in the Registrar of Companies office as per the FTE Scheme.
Completion of Formalities: Complete all the formalities with the MCA, the ROC, and the auditor to formalize the closure process.
Conclusion
The FTE Scheme offers a pragmatic and legally sound solution for entrepreneurs who have neglected their private limited company. By following the guidelines and working with a professional, you can exit your company while avoiding legal complications. Consulting with a CA such as Bhavesh Savla can help you navigate this process more effectively and ensure a smooth closure of your company.