Company and LLP Strike Off vs. Winding Up: Key Differences and Procedures in India

Businesses in India may shut down due to financial constraints, regulatory challenges, or strategic changes. The two main ways to close a Company or Limited Liability Partnership (LLP) are Strike Off and Winding Up. While both methods lead to the closure of the business, their procedures, implications, and legal requirements vary.

This article explains the differences between Strike Off and Winding Up for Companies and LLPs and outlines the step-by-step procedures involved in each method.

Understanding Strike-Off and Winding Up

What is Strike Off?

Strike Off refers to the removal of a Company or LLP's name from the Registrar of Companies (ROC) records when the business is no longer operational. It is a simpler and faster process compared to Winding Up.

What is Winding Up?

Winding Up is a formal liquidation process where the business ceases operations, assets are sold, liabilities are settled, and the company is legally dissolved. It is more complex than Strike Off and involves approval from creditors, tribunals, and regulatory authorities.

Key Differences Between Strike Off and Winding Up

Strike Off for Companies and LLPs

Strike Off for Companies

Companies can apply for Strike Off under Section 248 of the Companies Act, 2013 if they:

• Have not commenced operations since incorporation.
• Have not conducted business for the last two financial years.
• Do not have any outstanding liabilities.

Procedure for Company Strike-Off

Step 1: Board Resolution

• The Board of Directors passes a resolution for Strike Off.
• Approval from shareholders is required through a special resolution (75% majority).

Step 2: Settlement of Liabilities

• The company must clear all pending liabilities.
• Obtain a No Objection Certificate (NOC) from creditors, if applicable.

Step 3: Filing of Form STK-2 with ROC

• Submit Form STK-2 along with:
  • Indemnity bond from directors.
  • Affidavit confirming no outstanding liabilities.
  • Statement of accounts (not older than 30 days).

Step 4: ROC Review and Strike-Off Notice

• The ROC verifies the application and issues a public notice in the Official Gazette.
• If no objections are raised within 30 days, the company is removed from MCA records.

Strike Off for LLPs

LLPs can apply for Strike Off under Rule 37 of LLP Rules, 2009, if they:

• Have not carried out business for the last one year.
• Have no outstanding liabilities or pending compliance issues.

Procedure for LLP Strike-Off

Step 1: Partner's Resolution

• All partners must pass a resolution approving Strike Off.

Step 2: Filing of Form 24 with ROC

• Submit Form 24 along with:
  • Statement of assets and liabilities.
  • No-objection declaration from partners.
  • Latest income tax return copy (if filed).

Step 3: ROC Verification and Final Order

• The ROC reviews the application and issues a public notice.
• If no objections are raised within 30 days, the LLP is removed from the register.

Winding Up of Companies and LLPs

Winding Up applies when a company or LLP closure procesure has assets, liabilities, creditors, or ongoing operations that require proper liquidation.

Winding Up of a Company

Companies can be wound up in two ways:

a) Voluntary Winding Up

• Initiated by shareholders and directors when the company decides to close permanently.
• Requires consent from creditors, ROC, and NCLT.

b) Compulsory Winding Up

• Ordered by the NCLT due to non-compliance, insolvency, fraud, or legal disputes.
• Creditors, regulators, or the government can apply for Winding Up.

Procedure for Winding Up a Company

Step 1: Board Resolution for Winding Up

• Directors pass a resolution and approve appointment of a liquidator.

Step 2: Approval from Shareholders and Creditors

• Shareholders pass a special resolution (75% majority).
• Creditors' approval is taken for settling debts.

Step 3: Filing of Winding Up Petition with NCLT

• Submit necessary documents, including:
  • Statement of assets and liabilities.
  • Details of creditors and liabilities.
  • Auditor's report.

Step 4: Liquidation Process

• The liquidator sells company assets to settle debts.
• Creditors are paid off before distributing any remaining funds to shareholders.

Step 5: Final Approval from NCLT

• Once liquidation is complete, NCLT issues a dissolution order.
• The ROC updates the company's status as "Dissolved".

Winding Up of an LLP

LLPs can be wound up in the following cases:

• Voluntary Winding Up - Partners decide to close the LLP.
• Compulsory Winding Up - Ordered by NCLT due to insolvency or legal violations.

Procedure for LLP Winding Up

Step 1: Partner's Resolution for Winding Up

• A resolution is passed by at least 75% of partners.

Step 2: Appointment of Liquidator

• A licensed liquidator manages the settlement of liabilities.

Step 3: Creditors' Approval and Asset Liquidation

• Creditors are informed, and asset liquidation begins.

Step 4: NCLT Petition and Dissolution Order

• The final petition is filed before NCLT for approval.
• Once approved, the LLP is officially dissolved.

Which Option is Best for a Business?

If the business has no liabilities, Strike Off is the easiest way to close it. If the company or LLP has outstanding dues, creditors, or legal matters, Winding Up is the proper route.

Conclusion

Strike Off and Winding Up serve different purposes in closure of Company or LLP. Strike Off is a simpler option for inactive businesses, while Winding Up is necessary for companies with assets, liabilities, or legal complexities. Understanding the right approach helps business owners close their companies while fulfilling compliance obligations.