Case Study on Closure of a company which has Borrowings.

In this case, We have a Private Limited Company with an Authorized and Paid-up Share Capital of Rs 1,00,000/- and a Borrowings of Rs 16,00,000/- We have to now decide on the alternatives which we have for the Closure.

Option 1: Closure of Company.

In Order to Close the company we will have to settle the Borrowings of Rs 16,00,000/- and hence we will have to show it as capital. The Company is having an Authorized Capital of Rs 1,00,000/- and hence we will have to follow the following steps:

Step 1: Increase Authorized Capital to Rs. 17,00,000/- 

1) Read the Articles of Association and verify that the company is allowed to increase its authorized capital. In case the company is not allowed then we will have to alter the articles of association. To alter the AOA we will do the following:

    a) Convey a Board Meeting – 7 days notice and pass a special resolution

    b) Call an EOGM and a notice of 21 days shall be given to members

    c) File Form MGT-14 with ROC within 30 days

2) Conduct a Board Meeting for Increase in the Authorized Capital – Atleast 7 Days Notice Period and Pass an Ordinary Resolution to conduct an EOGM

3) A Notice of atleast 21 days to be given for EOGM

4) File Form MGT-14 within 30 days from the date of resolution. The Fees for the Form will be Rs 300/-

5) File Form SH-7 to increase the authorized share capital. The Fees for the Form SH-7 is Rs 18,000/- which can be bifurcated into Normal Fees of Rs 14,000/- and Stamp Duty will be Rs 4,000/-

Step 2: Issue the Shares and Increase the Paid-up share capital.

1) We will issue the shares and note the Name, Address and other Details of the Shareholder and prepare the share certificate. At the time of issue of securities we will have to pay the Stamp Duty as well

2) In this case we will issue shares worth Rs. 16,00,000/- and will have to pay a stamp duty on the amount of issue of shares

3) File Form PAS-3 with ROC for Allotment of Securities. The Fees for Form PAS -3 will be Rs 400/-

Step 3: Closure of Company.

1) We can only close the company if it have NIL Assets under Charge. In this case the Company has a charge of Rs. 5,00,000/- and thus we will have to clear it first

2) We will Pass a Resolution in Board Meeting and also Pass a Resolution in EOGM for Closure of Company

3) We will file Form MGT-14 within 30 days from the date of Resolution

4) File Form STK-2 for Closure of Company. The fees for the Form will be Rs 10,000/-

5) We will also have to Incur the Stamp Paper and Legal Fees for Closure which will be Rs. 5,000/- approx.

6) Once the form is approved the Company will be Strike-Off in ROC Records and will be Closed

Summary of Cost

Particulars	Amount
Form MGT-14 (3*300)	900
Form SH-7	18,000
Form PAS-3	400
Stamp Duty on issue of securities	5,000
Form STK-7	10,000
Stamp Paper and Legal Fees	5,000
Total	39,300

Option 2: Convert the Company into an LLP.

If we decide to convert the Company into an LLP then we will have to follow the following steps and then we will have to apply for Closure of LLP.

 

Step 1: Conversion of Company to LLP

1) Pass a resolution for the Conversion of Company to an LLP in the Board Meeting

2) File Form MGT-14 within 30 days from the date of Resolution. The Fees of the Form will be Rs 300/-

3) We will have to apply for Name Reservation of an LLP in Form RUN-LLP. The Fees for the Form will be Rs 200/-

4) Once the Name is Reserved we will File Form FiLLiP for Incorporation of LLP. The Fees for the Form will be Rs 500/-

5) File Form 18 for Conversion of Private Company into an LLP

6) Once the Form is Approved we will get the Incorporation Certificate and we will now file Form 3. The Fees for the Form will be Rs 50/-

Notes:

    i) We can Close the LLP only after One Year of being inoperative

    ii) We will have to follow the Annual Compliance in Form 8 and Form 11 for a period of one year

    iii) At the time of Closure we will have to increase the capital of the LLP

    iv) Once all this is completed and our Assets and Liabilities are Nil we can then File for Closure of LLP in Form 24.

Step 2: Increase in Capital Contribution by Rs 16,00,000/-

1) Pass a Resolution for Increase in Capital

2) Alter the LLP Agreement

3) File Form 3 with ROC within 30 days from the date of Modification. The Fees for the Form will be Rs 5,000/-

Step 3: Closure of LLP

1) We can close the LLP if it has Nil Assets and Nil Liabilities and it is Inoperative

2) We will have to Pass a Resolution for the Closure of LLP

3) We will Prepare Affidavit and Indemnity Bond for All Partners. It will cost approx. Rs 2,500/- (4 Stamp Paper of Rs 500 each and Rs 500 Advocate Fees)

4) Close all bank accounts of LLP and get NOC from all Partners

5) Prepare Audited Financial Statements of LLP upto the date of closure.

6) File Form 24 with ROC within 30 days from the date of Resolution. The Fees of the form will be Rs 500/-

Summary of Cost

Particulars	Amount
Form MGT-14	300
Form RUN-LLP	200
Form FiLLiP	500
Form 18	50
Form 3	50
Professional Fees for Annual Compliance (1 Years * Rs 2,500/-)	2,500
Legal Charges for Alteration of LLP	1,000
Filing Form 3 for Increased in Capital	5,000
Form 24	500
Stamp Paper and Legal Charges for Closure	2,500
Total	12,600

Disclaimer:

All the Above Fees mentioned are as per the circulars and guidelines and fees specified by MCA. These fees may change depending upon the amendments and notifications issued by MCA.