Closure of LLP and Private Limited Company for Non-Operational Businesses in India

In India, many businesses start with great enthusiasm but eventually become inactive due to various reasons such as lack of funding, market conditions, or a shift in the promoter’s priorities. When a business is no longer operational, it is important to formally close it down rather than leave it dormant. This avoids unnecessary compliance burdens, penalties, and regulatory notices. The Ministry of Corporate Affairs (MCA) provides specific procedures under the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 for the closure of a Private Limited Company and a Limited Liability Partnership (LLP).

This article explains the process, legal provisions, and key aspects for both types of entities in a simplified manner.

Closure of a Private Limited Company

A Private Limited Company that is no longer in operation and has no significant assets or liabilities can apply for strike-off under Section 248 of the Companies Act, 2013.

- Voluntary Strike-Off under Section 248(2)

If the company has not commenced business or has not carried on any business for the past two financial years and has not filed an application to obtain the status of a dormant company, it can apply for strike-off voluntarily using Form STK-2.

This option is available only if the company:

• Has no active business operations

• Has filed all overdue financial statements and annual returns

• Has settled all liabilities

• Has closed all its bank accounts

• Has received consent from its shareholders and directors

- Legal Provision

• Section 248(2) of the Companies Act, 2013: Enables voluntary removal of the name of the company from the Register of Companies.

• Rule 4 of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016: Governs the procedure.

• Form STK-2: The prescribed form for applying to the Registrar of Companies (ROC) for strike-off.

- Procedure to Close a Private Limited Company

• Board Meeting: Conduct a board meeting and pass a resolution to close the company.

• Clear Liabilities: Ensure that all liabilities are paid off and bank accounts are closed.

• Shareholder Approval: Obtain a special resolution from shareholders authorizing the directors to apply for strike-off.

• Filing Form STK-2: Submit the application to the ROC with supporting documents like:

  • Indemnity bond (Form STK-3)

  • Affidavit by directors (Form STK-4)

  • Statement of accounts

  • Board and shareholder resolutions

• ROC Review: ROC may issue a notice to ensure there are no objections and then publish the notice in the Official Gazette.

- Time and Cost

• Timeline: Approximately 3 to 6 months.

• Government Fees: ₹10,000 for filing STK-2 plus professional charges.

Closure of LLP (Limited Liability Partnership)

The closure of LLP is also possible through a process called striking off of name under Rule 37 of the LLP Rules, 2009. This is applicable when the LLP is not carrying on any business for a period of one year or more.

- Legal Provision

• Rule 37 of LLP Rules, 2009 (as amended): Provides the procedure for striking off an LLP.

• Form 24: The application form used to strike off an LLP.

• Section 75 of the LLP Act, 2008: Deals with winding up and dissolution of LLP.

- Procedure to Close an LLP

• Consent of Partners: Take consent from all designated partners for voluntary closure.

• Clear Liabilities: Ensure all liabilities are cleared, and bank accounts are closed.

• Filing Pending Returns: File overdue returns including Form 8 (Statement of Accounts) and Form 11 (Annual Return), if applicable.

• Application in Form 24: File Form 24 to the Registrar with the following documents:

  • Copy of the LLP Agreement

  • Consent of all partners

  • Affidavit and indemnity by partners

  • Statement of account certified by a Chartered Accountant

  • A declaration that LLP has no liabilities and is not operational

• Publication and Approval: The ROC may accept or raise objections. If no objections are received, the LLP’s name is struck off and dissolved.

- Time and Cost

• Timeline: Around 2 to 4 months.

• Government Fees: ₹500 for Form 24.

Benefits of Formal Closure

• No Future Compliance: You are relieved from filing annual returns, income tax returns, or maintaining books of account.

• Avoid Penalties: Non-operational entities often attract late filing penalties if not closed properly.

• No Director/Partner Disqualification: Formal closure avoids the risk of disqualification under Section 164 of the Companies Act or equivalent LLP rules.

• Good Standing: Closure through legal procedure maintains the credibility of the promoter for future ventures.

• Clean Exit: A peaceful and well-documented exit with no litigation or liability.

Disadvantages of Dormant or Unclosed Companies

• Penalties: Accumulating late fees and penalties for non-filing of ROC returns.

• Director Disqualification: Directors of companies that fail to file financials for 3 consecutive years can be disqualified for 5 years.

• No Business Restart: You cannot restart or pivot from the same company without clearing old compliance.

• Legal Notices: ROC may suo moto strike off the company after issuing notice under Section 248(1), which can be damaging.

Important Points to Remember

• If your business is simply inactive but you plan to revive it later, consider applying for dormant status rather than strike-off.

• You must not have any litigation or pending court cases during the time of closure.

• Ensure all income tax returns, GST filings (if applicable), and other regulatory compliances are done before applying for strike-off.

Difference Between Strike-Off and Winding Up

• Strike-off is a simpler and faster process applicable for non-operational entities without liabilities.

• Winding up is a more complex and court-involved procedure, usually applicable when the business has liabilities or disputes.

Conclusion

Closing down a non-operational company or LLP is a responsible and necessary step to avoid future legal and financial troubles. The Indian government, through the Ministry of Corporate Affairs, has simplified the strike-off process for both Private Limited Companies and LLPs under Sections 248 and Rule 37 respectively. Whether you're a startup that didn’t take off or a business that had to pause operations, legally shutting down your entity ensures compliance, peace of mind, and a clean slate for future entrepreneurial journeys.

Frequently Asked Questions (FAQs)

- Can a company be struck off without filing annual returns?

No, you must file all overdue financial statements and annual returns before applying for strike-off under Section 248(2).

- Is it necessary to close the bank account before strike-off?

Yes, you must close all active bank accounts and attach a closure certificate while filing Form STK-2 or Form 24.

- What happens if I don’t close my dormant LLP or company?

You may incur penalties, and the directors/partners may be disqualified. The ROC can suo moto remove the name from its register under Section 248(1).

- Is it mandatory to take professional help for strike-off?

While it is not mandatory, legal and professional support ensures compliance with MCA rules and avoids rejection of the application.

- Can I restart the company or LLP after strike-off?

No, once the entity is struck off and dissolved, you cannot revive it unless you go through a restoration process under Section 252 of the Companies Act, 2013.