Startups

Exit Made Easy For Indian Startups – Step by Step Guide

exit procedure startups

Did your startup fail to commence its operation after incorporation? Or is it inoperative for 2 or more years? And now, you are of the opinion that the business could not be revived and hence, you want your startup to exit from the industry. But you are not sure as to how this is possible. Worry not, the Ministry of Corporate Affairs has made it easy for the entrepreneurs who want their startups to exit, by notifying an easy process of shutting off their companies by simply getting their names removed from the register of companies. These latest provisions introduced by the Government are a sigh of relief for the companies which are intending to exit without going through the tedious, time-consuming and expensive process of voluntary winding up.

So, you must be wondering that with all the hype created around it, how does this process actually work and what are the steps which are required to be followed for shutting off a startup? Section 248 of the Companies Act, 2013 and the Companies (Removal of names from the register of Companies) Rules, 2016 entails the legal formalities which are required to be undertaken by a company for getting its name struck off from the register of companies. Following is a step-wise process in detail to help you out, taking into consideration the legal provisions:

STEP 1: CLEAR OFF THE LIABILITIES, IF ANY

Pursuant to Section 248(2) of the Companies Act, 2013, the Company is required to of the company before commencing the process of strike off. Liabilities here means the outstanding debts, statutory taxes and other dues that are payable by the Company. The bank accounts of the company shall be closed down.

STEP 2: HOLD A BOARD MEETING

Issue a 7 (Seven) days prior notice to the board of directors of the Company, for holding the board meeting, stating therein the date, day, venue and agenda for discussion. In that Board Meeting, following resolutions shall be passed by the board of directors:

(i) Resolution for issuing notices to the shareholders of the Company for calling a shareholders’ meeting (a.k.a Extraordinary General Meeting).

(ii) Resolution for authorizing a director out of the Board to sign, file and submit the application of striking off the name of the company to the Registrar of Companies.

STEP 3: HOLD THE EXTRA-ORDINARY GENERAL MEETING (EGM)

The Company shall hold the EGM of the shareholders of the Company and shall pass a special resolution for striking off the name of the Company. It is to be noted that atleast 75% of the shareholders as per the paid-up share capital of the Company shall approve and pass this resolution.

Thereafter, within a period of 30 days the Company shall file online an e-form MGT-14 on the portal of the Ministry of Corporate Affairs.

STEP 4: COLLATION OF DOCUMENTS TO BE FILED WITH THE REGISTRAR OF COMPANIES

Post obtaining the approval of the shareholders, the company is required to file/submit an application for striking off its name to the Registrar of Companies having the jurisdiction, where the registered office address of the company is situated. The application is to be made online by filing an e-form STK-2. Following are the documents which are required to be attached with the e-form STK-2:
(i) Duly notarized/apostilled indemnity bond (format of which is given in form STK-3) of every director of the Company.
(ii) Duly notarized/apostilled affidavit (format of which is given in form STK-4) of every director of the Company.
(iii) Copy of PAN card (in case the director is Indian national or copy of passport (in case the director is foreign national) of each director, which is to be duly attested by a practising professional (CS/CA/Advocate).
(iv) Copy of documentary evidence (Aadhaar/telephone bill/electricity bill, etc.) for current and permanent address of each director, which is to be duly attested by a practising professional (CS/CA/Advocate).
(v) A statement of accounts containing the assets & liabilities of the Company made upto a day, not more than 30 days before the date of filing application (STK-2), which is to be duly certified by a Chartered Accountant.
(vi) Copy of Special Resolution (which was passed in the EGM), duly certified by each director of the Company.
(vii) NOC from appropriate concerned authority, if required (RBI, IRDA, Housing Finance Board, SEBI etc.).
(viii) An affidavit by the directors mentioning a statement regarding pending litigations, if any, involving the Company.

STEP 5: FILING OF APPLICATION FOR STRIKE-OFF IN E-FORM STK-2

The e-form STK-2 has to be carefully filled and all the documents stated in STEP-4 have to be attached in the said e-form. Thereafter, the director authorised to sign, shall affix his Digital Signature Certificate (DSC) in the e-form and a practising professional (CS/CA/Advocate) shall also be required to affix his DSC in the e-form. After completing the application, the form shall be uploaded online and an application fee of INR 5,000 shall be paid online on the portal of the Ministry of Corporate Affairs. The Registrar of Companies shall then scrutinize the application and shall issue a public notice in this regard. In case no objections are received by the Registrar, he shall issue a notice of striking off the name and the company shall cease to operate as a company with effect from the date stated in the notice.

In a nutshell, it could be concluded that winding up the affairs of a startup has been made easy by the Government of India, keeping in mind the volatility in the startup ecosystem, where more than 80% startups die within the first three years of starting up.


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