What Is Strike Off of Company and When Should You Do It?
Not every company lasts forever. Market conditions change, founders pivot, partnerships dissolve, and some ventures simply do not work out. When a company is no longer needed, properly closing it is just as important as properly starting it. An abandoned company continues to accumulate compliance obligations and penalties, and can eventually lead to director disqualification. This guide walks you through the complete process of closing a company in India.
Methods of Closing a Company
| Method | Applicable When | Timeline | Cost Range |
|---|---|---|---|
| Voluntary Strike-Off (STK-2) | No assets, no liabilities, no operations for 1+ year | 3 to 6 months | Rs. 10,000 to Rs. 25,000 |
| Voluntary Winding Up | Company has assets/liabilities to settle | 6 to 18 months | Rs. 50,000 to Rs. 5,00,000 |
| Compulsory Winding Up (NCLT) | Ordered by NCLT due to inability to pay debts or other grounds | 12 to 36 months | Rs. 1,00,000 to Rs. 10,00,000+ |
| Fast Track Exit (FTE) | Defunct company that never started operations | 3 to 6 months | Rs. 10,000 to Rs. 20,000 |
| Dormant Company Status | Want to preserve the company for future use | 1 to 2 months (for dormant application) | Rs. 5,000 to Rs. 10,000 |
Voluntary Strike-Off: Step-by-Step Process
Voluntary strike-off under Section 248(2) is the most common method for closing a small company that has no assets, no liabilities, and has ceased business operations.
Prerequisites
- Company must have no assets and no liabilities at the time of application
- Company must not have carried on business for 1 year or more before the application
- All pending annual filings must be cleared (AOC-4, MGT-7A for all overdue years)
- All tax liabilities must be settled (income tax, GST, TDS)
- GST registration must be cancelled
- Bank account balance should be nil or distributed to shareholders
Step 1: Board Resolution
Hold a board meeting and pass a resolution to close the company through voluntary strike-off. Record the resolution in the minutes book with reasons for closure.
Step 2: Special Resolution or Consent
Obtain consent of at least 75% of shareholders through a special resolution at a general meeting, or obtain written consent from all shareholders (if using written resolution method for small companies).
Step 3: Clear All Pending Compliance
Before filing STK-2:
- File all overdue annual returns and financial statements with penalties
- File the final income tax return (ITR for the period up to closure)
- Cancel GST registration and file final GST returns
- Settle all outstanding TDS liabilities
- Close the company's bank account
- Clear all outstanding loans and payables
Step 4: Obtain Indemnity Bond and Affidavit
Directors must sign an indemnity bond (stamped on non-judicial stamp paper) and an affidavit declaring that the company has no pending liabilities, no pending litigation, and all creditors have been paid or their consent obtained.
Step 5: File Form STK-2
File Form STK-2 with the ROC along with:
- Board resolution for closure
- Special resolution or shareholders' consent
- Indemnity bond from all directors
- Affidavit from all directors
- Statement of accounts (not older than 30 days from the application date)
- Government fee of Rs. 5,000
Step 6: Public Notice and Objection Period
The ROC publishes a public notice on the MCA portal giving stakeholders 30 days to raise objections. If no objections are received and the ROC is satisfied, the company's name is struck off from the register.
Step 7: Strike-Off Order
The ROC issues a strike-off notification in the Official Gazette. From this date, the company ceases to exist as a legal entity.
Closing an LLP
LLPs follow a similar but slightly different process:
LLP Strike-Off Process
- File all pending Form 8 and Form 11 returns with penalties
- Settle all tax and GST liabilities
- Obtain consent of all partners for closure
- File Form 24 (Application for Strike Off) with the ROC
- Attach indemnity bond, statement of accounts, and partner consent
- ROC publishes notice and processes the application
- LLP is struck off after the notice period
Checklist Before Closing a Company
| Task | Status Required | Action If Pending |
|---|---|---|
| Annual returns (AOC-4, MGT-7A) | Filed for all years | File with late fee (Rs. 100/day per form) |
| Income tax returns | Filed for all years + final return | File with late fee + interest |
| GST registration | Cancelled | File cancellation application + pending returns |
| TDS liabilities | All deposited and returns filed | Deposit pending TDS + file returns |
| Bank account | Nil balance and closed | Transfer balance to shareholders, close account |
| Outstanding loans | Fully repaid | Repay or settle with creditors |
| DIR-3 KYC | Filed for all directors | File with Rs. 5,000 late fee per director |
| Employee settlements | All dues cleared | Pay pending salaries, PF, and gratuity |
Dormant Company: An Alternative to Closure
If you want to preserve the company for future use but do not want to maintain active compliance, you can apply for dormant company status under Section 455 of the Companies Act. A dormant company:
- Must still file annual returns (but with simplified reporting)
- Requires minimal compliance and lower professional fees
- Can be reactivated when needed by filing an application with the ROC
- Preserves the company's name, PAN, TAN, and registration history
Dormant status is useful when you want to keep options open for the future without the full compliance burden of an active company.
Common Mistakes When Closing a Company
- Abandoning instead of formally closing: Leads to penalties, director disqualification, and eventual forced strike-off with adverse consequences
- Not settling GST before strike-off: Pending GST returns block the closure process and attract additional penalties
- Ignoring pending liabilities: Strike-off applications are rejected if liabilities exist; winding up may be required instead
- Not filing the final income tax return: Even after closure, tax authorities can issue notices if the final return is not filed
- Forgetting to cancel registrations: GST, Professional Tax, ESIC, PF, and other registrations should all be cancelled
Conclusion
Closing a company requires planning, compliance clearance, and proper legal process. It is not something that happens overnight, and it should never be skipped in favor of simply abandoning the entity. The cost of proper closure is almost always lower than the cost of accumulated non-compliance penalties and director disqualification. If your company is no longer serving its purpose, close it properly and move on with a clean slate.
IncorpX provides complete company closure services, including compliance backlog clearance, GST cancellation, and STK-2 filing, ensuring a smooth and hassle-free closure process.
