In this blogpost, Aditi Sampat, Advocate, Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, the procedure to wind up a company and a LLP and compares the same.
Winding up of a Company under Companies Act 2013:
Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors.
In the words of Prof. L.C.B. Gower, “Winding-up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator called liquidator is appointed, and he takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights.”
Thus in the words of Pennington, “Winding up or liquidation is the process by which the management of a company’s affairs is taken out of its director’s hand, its assets are realized by a liquidator, and its debts and liabilities are discharged out of the proceeds of realization, and any surplus of assets remaining is returned to its members or shareholders. At the end of winding up the company will have no assets or liabilities, and will therefore be simply a formal step for it to be dissolved, that is its legal personality as a corporation to be brought to an end.”
Section 270 of the Companies Act 2013 mentions the modes of Winding up of a Company:
- Winding up by Tribunal.
- Voluntary Winding up of the Company.
Section 271 of the Companies Act 2013 mentions the circumstances wherein a Company may be wound up by the Tribunal:
- If the company is unable to pay its debts.
- If under a special resolution, the company has resolved to be wound up by Tribunal.
- If the company has acted against the interests of India.
- If the company has been declared as a Sick Company.
- If the company has made default in filing its financial statements for preceding five consecutive years.
- If an application is made by the Registrar or any other person that the company’s affairs have been fraudulent or for an unlawful
- Tribunal is of the opinion that it is just and equitable that the company should be wound up.
A petition for Winding up of a Company by the Tribunal can be given by:
- The company
- The creditors
- Any contributory or contributories
- By the central or state govt.
- By the registrar of any person authorized by central govt. for that purpose
Section 304 of the Companies Act 2013 mentions the circumstances wherein a Company may be wound up voluntarily:
(a) if the company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company should be dissolved; or
(b) if the company passes a special resolution that the company be wound up voluntarily.
Winding up of Limited Liability Partnership:
Limited Liability Partnership or LLP is a new form of business entity introduced in India through with the passing of the Limited Liability Partnership Act 2008. As a company, an LLP enjoys the feature of Limited Liability and is also a Body Corporate. However, there may be a number of reasons which may lead to “Winding up of an LLP”.
“Winding up of an LLP” means to bring to an end the affairs and the operations of an LLP. In this process, a Liquidator is appointed who takes charge of the LLP, that is, its assets and debts. Completion of the process of winding up entails removal of the name of the LLP from the records of the Register of LLP.
Section 63 of the Limited Liability Partnership Act prescribes 2 modes for winding up of LLP
- Winding up by the Tribunal.
- Voluntary Winding up.
Section 64 of the Limited Liability Partnership Act mentions the circumstances wherein an LLP may be wound up by the Tribunal:
- if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
- if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;
- if the limited liability partnership is unable to pay its debts;
- if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
- if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
- if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.
Voluntary Winding Up of LLP
The process of Voluntary Winding up of LLP commences with the passing of a resolution to initiate the winding up of the LLP having the approval of at least three-fourths of the total number of Partners. If the LLP has creditors – both secured and unsecured, then the approval of the creditors is mandatory for winding up of the LLP.
Comparison – Which is Easier
The circumstances responsible for winding up of Limited Liability Partnership and Company are remarkably similar.
As distinguished from a Public Limited Company, typically the process is almost the same when it comes to winding up a Private Limited Company and Limited Liability Partnership. In both of the aforementioned cases:
- Voluntary Winding up – In the case of Private Limited Company, the winding up of a Company would require resolution to be passed by the Shareholders and in the case of LLP, the approval of at least three-fourths of the total number of Partners would be a requirement as per the agreement between the partners.
- Winding up by the Tribunal – In the case of Private Limited Company as well as LLP, the Tribunal could pass an order for winding up of the Private Limited Company or the LLP as the case may be.
The procedure for winding up in case of Public Limited Companies is rather complex and time-consuming, since apart from the resolution to be passed by the Shareholders in accordance with the Articles of Association in the case of Voluntary Winding up or Winding up of a Public Limited Company by a Tribunal:
- Regulatory approvals such as approvals from Stock Exchange, SEBI, RBI and Registrar of Companies would be required to wind up the Public Limited Company.
- Approval from the Ministry of Corporate Affairs – Government of India in addition to the above approvals.
As distinguished from the above, the Limited Liability Partnership performs all the business functions on the basis of a Partnership deed which is an agreement between the partners. The Deed contains the specifications regarding the procedure to be followed on winding up of the LLP.
Hence, it can be safely concluded that the Winding up of a Limited Liability Partnership is easier and less time consuming than a Public Limited Company.
- Companies Act 2013 – Bare Act.
- Limited Liability Partnership Act 2008 – Bare Act.
- Business Law – Avatar Singh – 10th
- Definition of Winding up in ‘Modern Company Law’, 4th
- Definition of Winding up in ‘Pennington’s Company Law’, 5th Edn.