How Much Does It Cost to Wind Down a Private Limited Company in India That Has Been Inactive for 5 Years?

When a private limited company in India has not filed anything in five years and has been inactive, a specific procedure must be followed to wind down or close it down. This article explores the potential costs and steps involved in this process.

Understanding the Legal Status

The first step in determining the cost and process for closing a private limited company is to check the Master Data of the company with the Ministry of Corporate Affairs (MCA). This can help ascertain if the company has been struck off by the Registrar of Companies.

Striking off a company is a formal process where the Registrar of Companies removes the company's records from the records of the MCA. If the company's status is 'Struck Off', no further action is required. However, if the status is 'Active', a Special Voluntary Liquidation (SVL) or a 'Strike Off' (STK) form must be filed.

Cost of Closure Process

The cost of closure process can vary widely depending on several factors:

Non-Active and Struck Off Company: If the company has already been struck off, there is no need to incur additional costs. However, if the company is still 'Active', the process may require compliance filings for the past five years. This can result in significant government fees, often ranging from lakhs of rupees. Special Voluntary Liquidation (SVL): This is an alternative process under the Rules 2020, which was introduced to simplify the winding up process. SVL requires a professional liquidator to be appointed, and the process can be costly due to the legal and administrative requirements. Official Liquidation: This is the traditional process, carried out by an official liquidator appointed by the Central Government. This process is more involved and generally more expensive due to the extensive documentation and legal requirements.

During the closure process, all assets must be liquidated, debts paid off, and any remaining assets distributed to shareholders. This involves detailed steps such as the appointment of a liquidator, publication of notice, and completion of various formalities with government and regulatory bodies.

Steps Involved in the Closure Process

Check DIN Status of Directors: For an accurate estimation of the cost, it is important to first check the Directors Identification Number (DIN) status. This will help in identifying any compliance issues that need to be addressed. Appoint a Liquidator: An official liquidator must be appointed to handle the closure process. This involves paying government fees for the liquidation process. File Relevant Forms: Depending on the chosen process, you will need to file specific forms, such as the STK form for striking off or SVL for special voluntary liquidation. Publish Notice in Newspapers: A notice must be published in a recognized newspaper to inform creditors and stakeholders about the closure process. Complete Audits and Compliance: Any pending compliance, taxes, and other financial obligations must be settled to avoid legal repercussions. Distribute Remaining Assets: Any remaining assets or liabilities will be distributed to shareholders and creditors.

Cost Estimates and Professional Services

The total cost for wind down or closure can range from several thousand to lakhs of rupees, depending on the complexity of the case and the chosen process. Here is a breakdown of potential costs:

Government Fees: As of 2023, the cost for special voluntary liquidation is approximately 9,999 INR. Liquidator's Fees: The cost for a professional liquidator can vary, typically ranging from 5% to 10% of the company's assets. Consultancy Fees: Legal and consultancy services can add to the overall cost, especially if additional compliance or audits are required.

It is advisable to seek professional help to ensure a smooth closure process and compliance with all legal requirements. Companies can contact professional services at {Email: support@, Call: 91 7305 345 345} for assistance.

Conclusion

Closing a private limited company in India that has been inactive for five years may require significant effort and resources. It is important to understand the legal processes involved and the potential costs. Consulting with professionals can help navigate this process efficiently and with minimal complications.