Starting a company is an exciting endeavor, but there may come a time when closing it down is the best path forward. Voluntarily striking off a company from the registrar of companies can be done when the business is defunct or no longer operational. However, this process requires submitting certain draft documents to prove the company’s eligibility for removal. Neglecting this crucial paperwork can lead to complications and failure of the strike off application. This article will provide an in-depth guide to drafting the correct documents needed when voluntarily striking off a company in India.
Striking off a company refers to the removal of the company’s name from the registrar of companies’ register. This effectively leads to the dissolution and closing down of the company. For entrepreneurs, understanding what strike off entails and preparing the right paperwork is key – lack of due diligence can derail the entire process. Proper draft documents need to be meticulously prepared as per guidelines and submitted to the RoC. This article will cover the nuances of voluntary strike off and the essential documents that need to be drafted.
Understanding Strike Off
Strike off, also known as striking off the register, is the termination of a company’s existence via a legal process. Under Section 248 of the Companies Act 2013, the Registrar of Companies (RoC) has the authority to strike off a company’s name if it is non-compliant or non-operational. However, companies can also voluntarily initiate strike off by submitting an application to the RoC along with draft documents that prove eligibility.
There are two main categories of strike off:
- Voluntary Strike Off: When shareholders and directors mutually decide to close the company and apply for strike off. This is initiated voluntarily by the company.
- Compulsory Strike Off: When the RoC strikes off a company suo moto for non-compliance, defaulting filings, inactive status etc.
Voluntary strike off is preferable as it gives the company control over the proceedings. For this, preparing the correct paperwork and draft documents is crucial.
Preliminary Steps Before Drafting Documents
Before drafting any strike off documents, the company must complete certain preliminary steps to ascertain eligibility:
- Ensure the company has NIL assets and liabilities by settling all dues and obligations. Pending liabilities can obstruct strike off.
- The company should have ceased functioning and not carrying out any business activities.
- If there are any ongoing legal cases or disputes, those need to be resolved first.
- The company must obtain No Objection Certificates (NOCs) from creditors/lenders if applicable.
- All shareholders and directors should mutually pass the resolution to strike off the company.
- Intimate stakeholders like employees about the upcoming strike off.
Completing these prerequisites will ensure a hassle-free drafting process later.
List of Essential Draft Documents for Strike Off
The key documents that need to be carefully drafted and submitted for voluntary strike off include:
a. Application for Striking Off the Company
This main application form is duly filled as per Form STK-2 and signed by designated directors and shareholders. It contains:
- Name anddetails of the applicant company
- Reasons and eligibility for strike off as per Companies Act 2013
- Relevant declarations and verifications by directors
- List of documents attached along with the application
- Details of pending litigations and assets/liabilities (if any)
The application must be accurately filled with all relevant information furnished correctly.
b. Director’s Declaration
An important accompanying document is the Director’s Declaration in Form STK-3. This contains:
- Statement that the company wasn’t carrying out any business since ____ date
- Declaration that the company has no assets or liabilities as on date
- Disclosure regarding pending legal cases and obligations (if any)
- Confirmation that the company can be struck off
- Indemnifying the RoC against any future claims after strike off
Directors must disclose all details diligently in the declaration.
c. Indemnity Bond (if applicable)
If the company has any pending liabilities or obligations, the directors and shareholders must jointly submit an indemnity bond undertaking to clear those dues even after the strike off.
This indemnifies the RoC against future claims by creditors, lenders etc. The indemnity bond contains:
- Details of the pending obligations and liabilities
- Undertaking by directors & shareholders to discharge those dues post strike off
- Indemnifying the RoC against any claims arising out of strike off
Expert legal counsel can help draft a fool-proof indemnity bond.
d. Affidavit of Compliance
This affidavit is sworn before a Public Notary by a director affirming that:
- The company has complied with the Companies Act 2013
- All statements made in the strike off application are correct
- The company is not carrying out any business activity
- No public interests will be adversely affected by the strike off
The affidavit verifies the authenticity of the information provided.
e. Statement of Accounts
An audited statement of the company’s accounts till the strike off application date must be attached. This includes:
- Duly audited Balance Sheet, P&L statement
- Statement of Assets and Liabilities
- Cash Flow Statements
- Audit Reports
- Disclosure for non-maintenance of books (if applicable)
This provides financial clarity to the RoC on the company’s standing.
f. Notices/Letters to Stakeholders
The company must inform relevant stakeholders about the upcoming strike off via notices or letters, including:
- Any other stakeholders
These notices serve as evidence that relevant parties have been intimated.
g. Other Documents as per Jurisdiction
Additional documents may be required based on the company’s jurisdiction, shareholder agreements, business nature etc. Professional consultation is advisable.
Common Mistakes to Avoid
Some common errors in strike off paperwork to be avoided include:
- Inaccurate or incomplete information in the application
- Non-disclosure of pending liabilities and obligations
- Not obtaining NOCs from creditors/lenders
- Delay in filings – documents should be up to date
- Insufficient documentation as per company structure
- Lack of normalization of books of accounts
- Not informing and getting consent of all shareholders
Seeking legal and financial counsel can help avoid these mistakes. Maintaining proper documentation from inception also helps.
The Process After Document Submission
Once all documents are meticulously drafted and submitted to the RoC, here is the general process:
- The RoC reviews the application usually within 30 days
- If all is in order, it publishes a striking off notice in the official gazette
- After publication, stakeholders have 30 days to raise objections
- If no objections are received, RoC proceeds with recording the strike off
- The company is dissolved and its name struck off from the register
- The entire process takes around 4-6 months normally
If any stakeholder files objections or the RoC finds discrepancies, the company will be notified to take appropriate action.
Benefits of Proper Documentation
Drafting accurate strike off documents has many advantages like:
- Speedy approval as RoC formalities are fulfilled
- Avoidance of future litigation and liabilities
- Compliance with the dissolution process
- Clarity for stakeholders, preventing disputes
- Peace of mind for directors and shareholders
Striking off a company might seem like an easy shortcut to dissolve an ailing business. But improper documentation can invalidate the entire process, leading to legal tussles. Companies must invest time and effort to draft the required paperwork diligently as per RoC regulations before voluntarily applying for strike off. Seeking expert advice is highly recommended to avoid errors or non-compliance. Staying meticulously informed and organized from the company’s inception will also facilitate a smooth strike off when needed. With the right documents and diligence, companies can sail through voluntary strike off and official dissolution without hassles.