Dissolution of a Company
Author: Ms. Vaishali Malhotra, Kurukshetra University
A company is said to be dissolved when it is ceased to be exist as a corporate entity. After dissolution, the company’s name must be struck off from the Registrar from the Register of Companies. The owner of the company must publish about the dissolution of the company in the Official Gazette. In simple words, we can say that after the dissolution the label of a company puts to an end . After the process of dissolution , the company is ceased to carry on its business. Management affairs shall we withdraw from the director’s hands. After this, an administrator called liquidator is appointed who takes the control of the entire company in his hands.
II.Meaning of Dissolution of Company:
The dissolution of a company is the last stage after the process of winding up by a liquidator. The process of dissolution of a company resulted in the termination of a legal entity from the company. It is the last process of closure of a company. In this process, A company comes to an end and all the acids and the property of the company get redistributed. The affairs of the company gets also terminated after the dissolution of a company
III. Sec 481-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 an 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 thirty days from the date thereof, be forwarded by the liquidator to 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 five hundred rupees for every day during which the default continues.
IV. Difference between winding up and dissolution of a company:
- The dissolution of a company and the winding up of a company are two different words but related to each other.
- The dissolution of a company is the last step of the disclosure of a company whereas winding up of a company is a second last step of dissolution of a company after which dissolution of a company takes place.
- The dissolution of a company is a process lead by an up administrator who is called as liquidator under the Tribunal of laws under which he distributes assets of the company among the creditors and the shareholders of a company after the dissolution of a company the existence of the label of legal entity goes off. After the dissolution of a company, the affairs of business cannot be carried forward.
- The entire process of dissolution of a company is purely administrative function whereas the winding up of a company is purely a judicial function.
- In a dissolution of a company liquidator does not have any important role to do but on the other hand company liquidator plays a very important role in the winding up of the company.
V. Modes of Dissolution of the company:
Dissolution of a company may be brought about in any of the following manners:
Merger, reconstruction, and amalgamation:
Transfer your company’s undertaking to another company under the scheme of reconstruction, merging with other companies and amalgamation. In this condition, the transfer of a company will be dissolved by an order of the Tribunal without being wound up.
Voluntarily dissolution of a company:
The dissolution of a company takes place voluntarily by the will of shareholders in the General Meeting or shareholders meeting. In the voluntary dissolution of a company, the assets of the company get realized and the liabilities get paid off. After this, if there is any surplus left then it gets distributed to the members of the company in accordance with their rights.
Dissolution of a company by Tribunal:
According to Section 302 of Companies Act, 2013, the dissolution of a company by Tribunal takes place
Dissolution of a company by Tribunal states the procedure for dissolution of a company by the Tribunal which is discussed below:
- After winding up of a company, the company liquidator filed an application to the Tribunal for the dissolution of a company.
- Within 30 days, the order shall be submitted by the company liquidator to the registrar who shall record in the register relating to the dissolution of a company.
- If the company liquidator failed to submit a copy of the order within a period of 30 days, it would be punishable with a fine which may extend to 5000 rupees for every day during which the failure continues.
Removal of the name of the company from the Register of Companies:
Section 248 of the Companies Act, 2013 must be read with Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016 which provides the procedure and instances where the name of a company can be struck off from the Register of Companies. This can be done in the two following ways-
- In the case of incorporation of the company from one year, the Registrar on suo-moto basis struck off the name of the company from the register
- Another instance is that a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such a period for obtaining the status of a dormant company then also the registrar struck off the name of the company from the register.
VI. Causes of Dissolution of the company:
Running a business is not a very easy task as it Lays down many challenges out of it. Sometimes when things are not going right in the business then the owners of the business decides to shut down their business. Some of the following causes of dissolution of the company are mentioned below:
- If the company records Nil Assets and liabilities then also they decide to shut down their company.
- The dissolution of a company also takes place by the order of a court that means by the order of peoples court under Article 183 of the Constitution of India, 1950.
- Another important cause of the dissolution of a company is the expiration of the Article of Association of a company.
- Another cause of the dissolution of a company is that from the incorporation no activities have been commenced.
- Another very important cause of the dissolution of a company by the operation of law. For example, the Business license can be revoked by law after the performance of illegal activities.
- Not carrying out any business activity from one year can also act as a cause for the dissolution of a company.
- If a company is suffering from operational losses shut down the entire company.
- If a company wants to merge with some other company then also the previous company to be closed for the commencement of the new merger.
- If a company wants to divide its company into the parts of the previous company to be dissolved.
- If there is Liquidation of the company under the Insolvency and Bankruptcy Code, 2016 and also the company are forced to dissolve their company. For that purpose, The Insolvency and Bankruptcy Code, 2016 governs all these matters.
Reliance Infocomm Limited v. Sheetal Refineries Private Limited
In this case, a company is commercially insolvent and available assets are insufficient to meet the existing liabilities. Therefore the only option left is to dissolve the company.
VII. The procedure of dissolution of a company:
The following procedure is to be followed for the dissolution of a company:
- The first step is to obtain written permission from all the owners of the company for The dissolution of a company.
- Afterward, the office of the secretary of state is informed about the dissolution of a company.
- Another step is to satisfy all the outstanding taxes whether it is from the Federal Government or the Local Government.
- Sending of the intimation letter to the resistors authority which regulates the company.
- Another important step is to make the federal and state employment agencies know about the door dissolution of the company.
- Informing the shareholders, employees, creditors and other important people associated with the company about the dissolution of a company.
- Issuing of the official certificate of dissolution from the secretary of state which is the evidence of The dissolution of the company.
VIII. Effects of Dissolution of the company:
Following are the effects of dissolution of a company:
- After the dissolution of company business affairs cannot be carried forward.
- After the dissolution of a company the legal entity or the legal existence gets over.
- It simply means that after winding-up and before dissolution the legal entity or existence of the company remains as it is and therefore it can be sued in a court of law.
- ‘Dissolution’ of a company means the termination of the legal existence or personality of the company.
- After the dissolution of a company, it cannot be sued because at that time it does not remain in legal existence
- On dissolution, the name of the company is struck off the Register of companies by the Registrar and this fact is published in Official Gazette.
According to my view, the process of disclosure of a company is not very easy and simple but consists of a very complex procedure to be followed for the dissolution of a company. Previously there was only one legislation that regulates all the activities related to the disclosure of a company but nowadays with the promulgation of Insolvency and Bankruptcy Code, 2016. After the formulation of this act, it resulted in the technicalities that have arisen to apply these provisions simultaneously dissolution of a company or any other matter related to the company. Hence, nowadays, The area of company law has become a specialized field, because of its technicalities, but it perpetrates other drawbacks too because the person running the company, their linkage with the legal functioning of the company gets broken up. Therefore in my view simple and, easier laws are to be there so that it would enable a layman to run a company efficiently and legally as well without the dependency of the legal persons like lawyers.