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Dissolution of Company

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What is dissolution?

As per the Dictionary the action of formally ending or dismissing an assembly, partnership, or official body.

What is the dissolution of the company?

Company is said to be dissolved when the company decides to stop carrying on the business. After deciding to dissolve the company: Registrar of Company of the respective city struck off the name of the company. And Publish it in the Official Gazette of the company regarding the dissolution All the members and Directors withdraw from their act. And lastly, the assets of the company goes in the hand of Liquidator to distribute as per the Credit.

When to decide that company must dissolve?

If they proceed with voluntary dissolution, all loose ends, including the payment of outstanding taxes and creditors, must be tied up. Due to this, dissolution is only an option for solvent companies and should not be seen as a way to evade creditors. There are certain conditions that must be met before a company is eligible for dissolution. Your company must:

  •  Not have traded or sold off any stock in the last 3 months
  • Not have changed names in the last 3 months
  • Not be threatened with liquidation or any other type of insolvency proceedings, or have agreements with creditors such as a Company Voluntary Arrangement (CVA)

How does dissolution take place as per Section 481 of Companies Act 2013?

Dissolution of the company.

1) When the affairs of a company have been completely wound up

                                                 Or

When the Court is of the opinion that the liquidator cannot proceed with the winding up of a company for want of funds and assets or for any other reason whatsoever and it is just and reasonable in the circumstances of the case that order of dissolution of the company should be made

The Court shall make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly.

(2) A copy of the order shall, within 30 days from the date thereof, be forwarded by the liquidator

The Registrar who shall make in his books a minute of the dissolution of the company.

(3) If the liquidator makes default in forwarding a copy as aforesaid. he shall be punishable with fine which may extend to 50 rupees for every day during which the default continues.

Enforcement of and appeal from orders.

What are the Modes of Dissolution?

1) Merger, reconstruction and Amalgamation

Through the transfer of the undertaking of the company via merger, reconstruction and amalgamation Dissolution takes places in the case of the transferor company

In such a case, the transferor company will be dissolved by an order of the Tribunal without being wound up.

2) Voluntarily Dissolution of Company

In the process of voluntary Dissolution, the decision taken by the shareholder of the company in its General Meeting, Shareholders Meeting and so on. And realize the asset and pay off the liabilities and the remaining amount to be distributed among the members

3) Dissolution by Tribunal

As per Section 302 of the companies act 2013

When the winding up Procedure comes to an end, liquidator make an application to the Tribunal regarding the dissolution of Company

The company make an Order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly.

Copy of order shall be forwarded by the Liquidator of the company within 30 to the registrar to record in the register in minutes of dissolution of Company.

If any default is been conducted by the company then they will be punishable with a fine which shall not be less than 5000 rupees  for every day during which default continues

What are the Steps of the Dissolution of Companies act 2013?

  1. Permission in writing from the owner of the company
  2. Office of the secretary of state is informed about the dissolution of the company.
  3. Paying off all the taxes to both federal and local government
  4. Sending intimation letter to resistors of authority.
  5. Informing the various government and its agencies as per the requirement about the dissolution of the company such as federal or state agencies
  6. Informing everyone in the company about the dissolution of the company such as shareholders, Employees, Creditors and other important as per the requirement of the company and government
  7. Then the company get issued a certificate of dissolution from the secretary of state it works as the evidence of dissolution of the company

What is the difference between Winding Up vs Dissolution of Company?

S.NoWinding UpDissolution
1        Winding up is one of the methods of dissolutionDissolution is the end result of the company
2The legal entity continues at Commencement in the case of Winding UpLegal Entity comes to an end in case of dissolution of Company
3A company can continue its business if it necessaryDissolution of the company leads to ceasing of Company

What are the roles and responsibilities of the Company after deciding to dissolve the company?

There is a certain obligation which is compulsory to be abiding by the owner of the Company while deciding to dissolve the Company. They must comply with Legal compliances as per the requirement of the Government?

  • A company must ensure that their Assets have been distributed among the shareholders before dissolution, and if anything is remaining then it must be transferred in the hands of the liquidator.
  • Paying all the Tax, Corporation Tax, any other taxes as per the liabilities.
  • Filing all the Final accounts and Annual return as per the requirement of the government as the last statement, imminent dissolution of the company.
  • Confirm that the company can, or has, paid any outstanding debts
  • Closing the company bank accounts

Must keep the record for the period of 8 years from the date of its dissolution.

 Reliance Infocomm Limited Vs. Sheetal Refineries Private Limited

In this case, Reliance Infocomm limited is commercially insolvent and available assets are insufficient to meet the existing liabilities. So the company got dissolved under the companies act 2013

Is any other Alternative available apart dissolving the company?

Just like dissolving a company, a Members’ Voluntary Liquidation (MVL), is only an option for companies capable of settling its debts within 12 months. The MVL must be agreed to by a minimum of 75% of the company’s directors.

The liquidator will contact all creditors and ask for proof of debt. When all outstanding debt has been satisfied, all remaining funds will be distributed amongst the shareholders.

It is costlier than the dissolution

Another option is to Register the company as the dormant company

If you believe you may have use for the company in the future, registering it as dormant may be a better option. 

When does dissolution not take place?

If any of the creditors objects from dissolving company, and if the object was upheld by the Registrar then the dissolution will be upheld till it gets resolved.

Creditor even can apply to the court if the company evaded the creditors’ amount and it may happen that it may get restore.

 What are the effects of Dissolution of the Company?

A dissolved corporation continues its corporate existence but may not carry on any activities except those appropriate to wind up and liquidate its affairs, including:

1. preserving and protecting its assets and minimizing its liabilities;

2. discharging or making provision for discharging its liabilities and obligations;

3. disposing of its properties that will not be distributed in kind;

4. returning, transferring, or conveying assets held by the corporation upon a condition requiring return, transfer, or conveyance in accordance with the condition;

5. transferring, subject to any contractual or legal requirements, its assets as provided in or authorized by its articles of incorporation or bylaws;

6. if the corporation is a public benefit corporation or religious corporation and provision have not been made in its articles or bylaws for distribution of assets on dissolution, transferring, subject to any contractual or legal requirement, its assets:

7. to one or more persons described in section 501(c)(3) of the Internal Revenue Code; or

8. if the dissolved corporation is not described in section 501(c)(3) of the Internal Revenue Code, to one or more public benefit corporations or religious corporations;

9. if the corporation is a mutual benefit corporation and provision has not been made in its articles or bylaws for distribution of assets on dissolution, transferring its assets to its members or, if it does not have members, to those persons whom the corporation holds itself out as benefiting or serving; and doing every other act necessary to wind up and liquidate its assets and affairs.

Conclusion

Dissolution may seem like a straight-forward process but with proper caution, one must do the process of dissolution. Never share any false information intentional or intentional while going through the procedure of dissolution may lead to bad consequences and may lead to fine and imprisonment to the member or directors or nay respective person of the companies

The company wants to get dissolved completely it is always recommended to take the advice of the professionals, who would help in the legal procedure of dissolving the company as per the law of Companies act 2013 or any other.

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Sushma Gowda

Student, Vivekanand Education Society of Law Chembur Mumbai.

Sushma Gowda is a 1st year law student of Vivekananda education society of Law Chembur. She is an enthusiastic person to learn core area of various laws. She possesses research and drafting skills in different field of law. For any clarifications, suggestions and feedback kindly find her at sushmagowda1998@rediffmail.com

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