We have been receiving multiple queries on closure / strike-off of company where the subscribers have failed to pay for the shares subscribed. There are situations where subscribers have paid towards share subscription but have not commenced business or may be the company has stopped doing business but has not done its previous statutory annual filings with the Ministry of Corporate Affairs.
Here are the questions and some related aspects around them.
1. I recently incorporated a company. I do not want to do business in the company anymore and want to close it. I have not even opened a bank account, neither I nor the other shareholder have paid the share subscription money. Can I close the company without having to do any of those things?
A company need not open a bank account if it intends not to commence any business and apply for strike off.
2. I have been told that subscription money is amount receivable by the company and therefore, a liability of the shareholder subscriber towards the company.
Yes, as per Sec 10 (2), all monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.
3. If that is so, amount receivable by the company is an asset of the company. But one of theconditions for strike off is that the company should have nil assets and nil liabilities. Is company therefore, not eligible to file for strike off?
Sir, Sec 248(1) states the grounds under which a company could be struck off. Sub clause (d) mentions one of the conditions as “the subscribers to the memorandum have not paid the subscription amount”. Therefore, this can be a ground for company to make application to the Registrar of Companies for strike off under section 248 (2).
4. But how shall the Statement of Accounts with Nil Assets and Nil Liabilities be drawn when subscription money is receivable by the company?
While filing for Strike off, a statement of accounts showing nil assets and nil liabilities of the Company which shall be not be more than thirty days before the date of application needs to be annexed. In cases where the subscription amount is not paid and therefore, is receivable by the company, the suggested entries that may appear in the books post incorporation can be as follows (Assuming Rs. 10,00,000 is the subscribed capital):
At time of incorporation-
Claim from Subscribers Dr. 10,00,000
To Capital A/c Cr. 10,00,000
(Being amount payable by subscribers)
Upon decision to close/ strike off-
Capital A/c Dr. 10,00,000
To Claim from Subscribers written off Cr. 10,00,000
(Being claims written off)
5. The law also specifies that the company has to mandatorily file form INC 20A (confirming receipt of share subscription money in 180 days of incorporation) without which I can’t file any other form. How will I file the form for Strike off?
Filling of INC-20A is not a pre requisite of filling STK-2 to the MCA. If the subscriptionmoney has not been received and declaration of commencement of business in eform INC-20A within 180 days of its incorporation has not been filed, eform STK-2 can still be filed by the company.
6. In my case, the shareholders have paid subscription money and we have filed INC-20 A. But I do not intend to do business and want to apply for Strike off. Can I do it?
Filing of Form INC 20A does not disqualify the company for applying for strike off. The Bank account can be closed and STK 2 can be filed in terms of provisions of Section 248 of the Companies Act, 2013 explicitly stating the reasons for such application.
It is pertinent to note that, in case, the company has filed INC-20 A but has not commenced it’s business, the waiting period to apply for strike off is 1 years post its incorporation.
7. How shall we draw nil statement of accounts where we have received share subscription money? Can they return money to subscribers?
Capital is the investment of the company that belongs to the shareholders itself. Thus, if the subscription money has been received, we can write off it with some fictitious assets like preliminary expenses or any other expenses like professional fees that the company may incur and accordingly accounting entries can be made. But where the amount is fairly higher than expenses, the only option available shall be to go for Voluntary Liquidation for distribution of such money lying in the company. Strike off will not allow money to be returned to the subscribers.
8. We have not done the Annual Filings for past couple of years. Filing them now will involve heavy filing fees. Can I apply for strike off without filing for previous years?
As per proviso to Rule 4 (1) of Chapter XVIII of The Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016 “no application in Form No. STK-2 shall be filed by a company unless it has filed overdue returns in Form No. AOC-4 (Financial Statement) or AOC-4 XBRL, as the case may be, and Form No. MGT-7 (Annual Return), up to the end of the financial year in which the company ceased to carry its business operations.”
Thus, a company is required to complete with the overdue compliances, including filling of Annual return forms only if the company has commenced its business and not otherwise.