Closure of One-Person Company (OPC)

Can a One Person Company that has been incorporated, be dis-incorporated?

Yes! you heard it right. I just coined a word- ‘dis-incorporated’. It means to undo an incorporation of a legal entity.

Nothing is permanent. Nothing that we have created is infinite. Thus, when we say we have created a company with perpetuity, it may be so, ‘May’ being the operative word. The humans creating the Company have the option to discontinue it. To wound up a running company or to strike off the name of a company which has no operations.

What is the difference between Strike off and Winding up

Case 1:

Imagine you have a Company that has no operations, no revenue, any asset that you have can be easily liquidated or set off against a debt, liability that can be set off or paid off, thus ultimately you have a balance sheet that is showing only Share capital on the liabilities side and maybe cash/ bank balance on the asset side. This kind of a balance sheet is called a NIL balance sheet.

Case 2:

Now you have a Company that is holding a lot of assets (like Intellectual property, land, building, plant, machinery, debtors etc.) and has liabilities (like loans from banks, creditors etc.) and the shareholders want to voluntarily close the company. Thus, the balance sheet is not NIL but has many assets and liabilities.

Result Case 1:

In the first case, the balance sheet being clean- i.e. a NIL balance sheet, the regulatory authority understands that the Company has no assets or liabilities except for the owner’s fund and the balancing cash/ bank balance. Thus, the company has no outsider having any claims on the Company and the insiders i.e. the shareholders have claim to the cash/ bank balance that is leftover. Thus, it is a simple study in mathematics. It is very easy to wind up such a company as all its operations are already stopped- wound up. The only thing remaining to be done is to remove or strike off the name of such a company from the register of companies and remove its ‘legal entity’ status granted because of the entry in this register.

The Companies Act, 2013 u/s 248, has allowed such a company to make an application to the central government to get the name of the company struck off from the register of companies.

Result Case 2:

In this case, the balance sheet of the Company is complicated and has many debtors and creditors, assets etc. to be first paid and liquidated. Thus, the process to wind up such a company is long and convoluted. It is governed by section 270 to It will have many steps before it achieves a Nil balance sheet position. After all these steps, can the name of the Company be struck off from the register of companies.

Section 56 of the IBC (Insolvency and Bankruptcy Code, 2016 deals with voluntary winding up of the Company. The process is long whereby the shareholders agree to wind up the company and then apply to the NCLT under the provisions of IBC. The NCLT appoints a Liquidator who is an Insolvency professional. The Liquidator reduces the assets and liabilities of the Company to the basic denomination of ‘cash’ and creates a balance sheet whereby the company is left with no assets and liabilities. The Liquidator then submits a report to NCLT and states that the company has wound up its matters and can now be dissolved. The NCLT passes the order and directs the ROC to strike off the name of the Company from the register of companies.

What are the grounds for Voluntary Strike off by a One Person Company

The old Companies Act of 1956 under section 560, gave power only to the Registrar of Companies to initiate proceedings for striking the name of a defunct company from the Register of Companies. Thereafter the Ministry of Corporate Affairs under section 560 of the Companies Act, 1956, vide General Circular No.36/2011 dated 7-June-2011 issued the Guidelines for Fast Track Exit mode allowing companies to file voluntary applications.

Any company that is not having any operations, and wanting to get its name struck off the Register of Companies under Section 560 of the Companies Act, 1956, could now make an application in Form FTE along with a filing fee of Rs. 5,000/-

When the Companies Act, 2013 (the Act), became operational, the above provisions were incorporated under section 248 allowing any Company to voluntarily file for striking off its name, from the register of companies, if it is not operational. The Registrar too has the power to strike off names of such Companies that fit the provisions of the section. The process of such application has been covered under the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

Removal of Name of One Person Company from Register of Companies

Thus, removal of name of One Person Company can be done:

1. By the Registrar of Companies (ROC) or
2. Voluntary application by the One Person Company itself

What kind of Application Form is required to be filed by the OPC

STK-2 is the name of the form that has to be filed when a One Person Company wants to apply for voluntary strike off of its name from the Register of Companies.

This form has been migrated to the Ministry of Corporate Affairs (MCA) Version 3 (V3). Thus, in many instances the form has come for resubmission even though all documents had been attached earlier. The STK in the nomenclature of the form resembles the abbreviation of the word ‘strike’

Applicable section and Rules:

This application is pursuant to Section 248(2) of the Companies Act, 2013 read with Rule 4(1) of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016

With whom is the Application Form STK-2 to be filed with

The Central Government has created the office of Centre for Processing Accelerated Corporate Exit (C-PACE) and appointed a Registrar. This Registrar has the authority to process and dispose of applications submitted u/s 248(2) in Form No. STK-2 and handle all matters related thereto, with territorial jurisdiction across India.

What are the reasons/ grounds for voluntary closure of the One Person Company

This is the most important aspect for making an application under section 248(2) of the Act. If a One Person Company does not fall under any of the 3 conditions that are outlined in 248(1), then the OPC (One Person Company) cannot apply for a voluntary strike off process. Section 248(2) of the Companies Act,2013 states that a One Person Company that wants to apply for voluntary strike off of its name from the Register of Companies can make the application in Form STK-2 on all or any of the grounds specified in sub-section 248 (1)

These grounds are:

1. The One Person Company has failed to commence its business within one year of its incorporation. The ‘one year’ referred to in this clause is not be construed as a financial year or calendar year, but 365 days from its date of incorporation. For example: if the date of incorporation is 14th April, 2022, then the one year will be completed on 13th April 2023.
2. The One Person Company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant One Person Company under section 455

These two conditions have to be satisfied together. The One Person Company should not be carrying on any business i.e. not even have income from other sources. Also, the One Person Company should not be earning any revenue from operations. Further, even if there is no income, the One Person Company should not be engaging in any kind of business activity or operation. Thus, if the One Person Company has been inactive, it should also be such that it has not filed for a dormant One Person Company status. Remember, the 2-year period of no operations- of being inactive has to be shown. The OPC should check all its earlier filings of AOC-4 to make sure that in the preceding 2 years, they have shown NIL revenue from operations.

The Subscription money that the subscribers to the Memorandum of Association had agreed to bring into the One Person Company, has not been paid and the Declaration in Form INC.20A, stating that the subscription money has been received, to be filed within 180 days of incorporation of the One Person Company, has not been filed by the One Person Company under section 10A (1) of the Act;

Section 10A (1) of the Companies Act, 2013, has become effective from 2-November-2018. As per this section, any One Person Company that has a share capital must complete the following conditions before commencing its business or exercising its borrowing powers:

• Within 180 days (one hundred and eighty) from the date of incorporation, the One Person Company must file in E-Form INC-20A, a declaration, duly verified by a Director of the One Person Company, with the Registrar of Companies (ROC). This declaration states and confirms that the subscriber to the Memorandum of Association of the One Person Company, has paid the value of the shares he/she had committed to subscribe to.
• The One Person Company must also file in E-form INC.20A, a verification of its registered office under section 12(2) of the Companies act, 2013, along with photographs of the outside view of the registered office/ building and that of a director sitting in the office.

If, within the stipulated one hundred and eighty days of incorporation, no such declaration is filed with the Registrar as per clause (a) of sub-section (1), then the Company can apply in STK-2 for removal of its name from the register of companies.

Due to many reasons, a Company is unable to bring in the subscription money. For ex: A company was incorporated as its wholly owned subsidiary company in India, where the ultimate beneficiary was an Iranian national. But even after 6 months, none of the Indian banks were willing to open the bank account of the Company in India. Thus, the subscription money could not be brought into the country as there was no bank account. The holding company finally had to file for strike off of the name from the register of companies.

When can a One Person Company not apply for Strike Off Voluntarily

1. If a Company is incorporated under the provisions of Section 8 of the Companies Act, 2013, i.e. it is a company incorporated not for profit purposes, then it cannot go in for strike off of its name voluntarily. For incorporating a Section 8, please click here
2. If any annual filing i.e. of annual report or annual return is pending till the years that the Company had generated revenue from operations.
3. If a Company has in the previous three months (from date of application) done any of the following:

• altered its name
• shifted its registered office from one State to another;
• has generated any sort of income/ loss due to its operations (i.e. for the object that it was incorporated)
• has engaged in any other activity except - Necessary for making this application; to conclude company affairs; to meet legal requirements like statutory filings under GST or Cos Act etc.
• an application IN NCLT / RD is pending for merger/ amalgamation/arrangement/ demerger
• application for winding up/ liquidation/ voluntary winding up under Companies Act or IBC is underway.

This means that if in the last 2 years the Company had no revenue from operations, and it has not filed its annual report and annual return, it can still file STK-2 without filing these returns.