20 April 2022
Winding-up is the process that brings a company's operations to an end, collects and realizes its assets, pays off debts, and returns the remaining amount to its members the sums which they have contributed to the company in accordance with the Articles of the company.
The winding up process under the earlier provisions requires:
In order to streamline the process and align it with global practices, the Department of Industrial Policy and Promotion (“DIPP”) has proposed a fast track model for startups.
To facilitate faster exit for startups, the DIPP has urged the Ministry of Corporate Affairs (MCA) to classify startups as "Fast Track firms." This means that startups can now wind up their business within 90 days of applying for the process.
The previous lengthy and costly winding up process often discouraged companies from closing down and remain dormant. Many companies remained dormant i.e run the companies on paper, continuing to file tax returns and prepare annual reports despite being non-operational. However, the introduction of the fast track winding-up process by the DIPP has eliminated these challenges.
Now, startups can take advantage of a more efficient and time-effective process for winding up their company. This allows them to complete the closure swiftly, save on unnecessary paperwork, and avoid prolonged expenses.
The simplified fast track winding-up process for startups has brought relief to entrepreneurs who previously faced a complex and time-consuming closure process. With the DIPP's initiative, startups can now wind up their business efficiently within a shorter duration. This enables them to focus on new ventures and opportunities without being burdened by the long-drawn process of winding up their previous ventures.
Q: What is the process of winding up a startup?
A: The process of winding up a startup involves bringing the operations of the company to an end, collecting and realizing its assets, paying off debts, and returning any remaining amount to the members according to the company's Articles of Association. It typically involves filing a winding up petition with the National Company Law Tribunal (NCLT), preparing a statement of affairs, and complying with the necessary legal requirements and procedures.
Q: How long does it take to wind up a startup?
A: The duration for winding up a startup can vary depending on various factors such as the complexity of the company's debts and assets, the efficiency of the process, and the specific provisions applicable in the jurisdiction. However, with the introduction of the fast track model for startups, the process can be completed within 90 days from the application for winding up.
Q: What is the fast track model for winding up startups?
A: The fast track model for winding up startups is an initiative introduced by the
Department of Industrial Policy and Promotion (DIPP) to enable faster closure for startups. Under this model, startups can complete the winding-up process within 90 days of applying for it, streamlining the procedures and reducing the time and costs involved.
Q: Can startups opt for insolvency proceedings for winding up?
A: Yes, startups with simple debt structures can choose to initiate insolvency proceedings for winding up. As per the Insolvency and Bankruptcy Code, 2016, an insolvency professional can be appointed to oversee the liquidation of the company's assets and the repayment of its creditors within a specific timeframe, typically six months.
Q: What are the benefits of the fast track winding-up process for startups?
A: The fast track winding-up process offers several benefits for startups, including a quicker closure of the business, streamlined asset sale, and efficient repayment of creditors. It reduces the paperwork, costs, and complexities associated with the traditional winding-up process, allowing startups to exit their business swiftly and focus on new opportunities without unnecessary burdens.
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