The Process of closing a Public Limited Company is known as Strike off or company closure and it can also be done under newly notified rules, Companies (Removal of Names of Companies) Rules, 2016 which is governed by section 248 of Companies Act, 2013.
A Public Limited Company, legally termed as PLC is a publicly monitored company. It is a voluntary alliance or association of members that are incorporated and is an independent legal entity with the limited liability of members. The formation, working and its closure all these activities of PLC are strictly governed by rules, regulations, and laws. A Public Limited company have a min number of seven members but there is no limit as related to the maximum number. Public Limited Company can be listed or is not listed in the stock exchange.
It can be shut off by voluntary closure by the shareholders or mandatory by the court.
Why close a Public Limited Company?
If the company is not making a profit or does not have any ray of making a profit. The Company is basically inoperative. Then closure of a company is a better option in that situation. And If the Company gets Tribunal orders to be shut down. There are reasons as to why the public limited company are generally closed:
- Closing is a simple procedure for inoperative PLCs and a required step in order to extinguish any liabilities.
- To avoid being in default due to non-compliance of the rules.
- The closed Public limited Company no longer incurs any fines or penalty.
- When the company is unable to pay the debts.
- When there are no other issues but the shareholders want to close the company itself.
- When the Company has not filed financial statements or annual return in the preceding five consecutive years.
- If the Company has involved in fraudulent manners or is guilty of misconduct or fraud.
What are the minimum requirements for closing Public Limited Company?
If there’s voluntary closing of a public limited company, this will be possible if:
· Creditors Voluntary Liquidation: The Company and its shareholders choose to liquidate the Company because the company is not able to pay its debts.
· Shareholder’s Voluntary Liquidation: There Company can pay its debts but the shareholders want to close it.
Process of Closing a Public Limited Company
Company closure is filed under Form STK 2 (earlier it was FTE) along with the certain amount of government fees and the documents prescribed by the law. Closing of a company includes the main three steps:
1. Dissolution Resolution
For the dissolution of the company, at least 2/3rd of the shareholders must consider the resolution. The management of the company must submit an application to the Register of Companies along with the resolution of dissolving the company, in the general meeting.
After the dissolution resolution step and submission of application, the liquidation takes place, in a series of steps.
· Appointment of the liquidator is by members of the company or a separate liquidator appointed by the court. The liquidator submits the application of dissolution of the company to the Registrar.
· A notice is published in regard to the liquidation of Public Limited Company which is sent out by specifying the creditors so that to make them aware of the closure.
· Submit an annual report, Financial statement and opening balance sheet to the Registrar upon liquidation.
· If the assets of the PLC at the time of liquidation are not sufficient to satisfy all of the demands of the creditors, then the liquidators must file a bankruptcy petition. If a creditor known to the public limited company has not presented a demand and the demand cannot be satisfied due to reasons independent of the public limited company, the funds belonging to the creditor shall be deposited in a bond if possible.
· The preparation of final balance sheet of Public Limited Company and allotment of remaining assets according to the plan made by the liquidators is the final step of liquidation.
· The assets may be allotted after six months have passed since the dissolution of the PLC was entered into the Register and the liquidation notice being published and after two months have passed since the shareholders were notified of the presentation of the final balance sheet and asset distribution plan.
3. Deletion from Commercial Register
After the Public Limited Company has been liquidated as the second step in the process, the management board of the company will have to submit an application to the Registrar for the deletion of the company from the Commercial Register.
This can be done after six months of the entry of the dissolution of the PLC into the Register and providing notification along with a final balance sheet and asset allotment plan to the application for deletion from the Register. Liquidating a Public Limited Company is basically a time-consuming process that lasts at least six months.
The activities of a dissolved Public Limited Company can be continued, or a division, merger or transformation of the Company may also be conducted. To do it, the liquidators must submit to the Commercial Register an application for continuation of the company’s activities.
How long does it take to close a company? Are directors liable for the company’s debts?
It takes at least not more than 3 months for a company to be officially dissolved, but the time can differ substantially if the process is composite or complex. Generally, a company will stop being in existence in not less than 3 months of the winding-up notice being advertised in the Gazette. Usually, if you are acting as a director, then you are not personally liable for paying the company debts. This means that if the Public limited company does not pay its debts and a creditor takes legal action, only the company assets are at risk. However, then the director can be made personally liable for the following.
Outside of their fiduciary or general duties, directors are not basically held personally liable for the debts of the company.
Documents required for the closure of the PLC
The documents required at the time of closure of a PLC are:
- Application for Striking off of the Public Company.
- Board Resolution approving the closure which is important.
- Director’s Affidavit.
- Indemnity Bond.
- Statement of Assets and Liabilities.
- Consent of Members and Directors, as at least 75% consent of the shareholders or members of the company and one director also needs to be notified to take care of all the responsibility for company closure.
- Bank Account Closure Certificates (which is not mandatory, it is optional).
- Statement of Accounts containing assets and liabilities of the Company.
The three steps process for the closing of a public limited company is clearly explained above. A clear understanding of the process would help to complete the closure process quickly without any legal issues or complexities. Dissolving a public limited company is a straightforward procedure, but there are specific conditions and requirements that need to be taken into consideration.