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Company Status Strike Off: Importance and Consequences

Company Status Strike Off: Importance and Consequences

What is Company Strike off?

The dissolution of an entity under the supervision of the Registrar of Companies (ROC) is known as a company’s status strike-off. The firm gets removed through this procedure from the official register of corporations. After it is launched, the company changes dramatically and stops doing previous business. The government receives assets in order to pay off outstanding obligations, and the revenues from the sale of these assets are distributed to shareholders.

Regaining a company’s standing after a strike-off is not feasible. Nonetheless, it is legal to create a new company with the same name, allowing operations to resume even if it will have a new name.

Types of Company Strike-Off

Voluntary Strike Off

The legal process known as “Company Status Strike Off” allows directors to formally close down their company. By taking this voluntary action, the firm ends its legal existence and is removed from the list of registered companies. It is applicable everywhere and serves a wide range of organisations, from tiny private businesses to large public corporations. Voluntary strike-off is appropriate for companies that are insolvent or have ceased operations; it is not appropriate for companies that are in financial trouble or are actively trading. Procedures like liquidation or administration would better suit their situation in such cases.

Strike Off by ROC

Dissolving a business or removing it from the Registrar’s records is the goal of the business Status Strike Off procedure implemented by the ROC in India. For dormant or closed firms, this procedure starts the closing process. It is valid in all states and union territories, with minor differences. Following the strike-off order’s issuance, the firm ceased to exist as evidenced by its removal from the Registrar’s records. As a result, directors are held responsible for any liabilities accrued during operations, and assets are distributed among creditors in accordance with the order’s instructions. This simplified process provides a quick and easy way to shut down non-operational businesses. It also offers a financially sensible substitute for court-ordered corporate liquidation.

Importance of Maintaining Active Company Status

. Being active increases credibility with investors, partners, and clients.
. Maintains compliance with regulations to prevent fines or dissolution
. Retaining active status makes one eligible for funding, contracts, and commercial collaborations.
. Permits access to loans, banking services, and assistance from financial institutions
. Being active shows stability and enhances a business’s standing in the marketplace.
. Demonstrates dedication to the staff, cultivating a happy workplace, and keeping talent.

Common Reasons for Company Strike Off

. If the company doesn’t do anything for a long time, it could be fired.
. A business may face strike-off if it participates in dishonest or unlawful actions.
. A business may be subject to strike-off if it neglects to provide the regulatory body with the required paperwork or fees.
. Strike-off may apply to a corporation that is about to cease operations and has no assets or liabilities.

Consequences of Company Strike Off

Asset seizure: If a struck-off corporation has assets, those assets may be taken and sold to pay off outstanding debts or liabilities. Such activities could cause the company and its stockholders to suffer large financial losses.
Reputation damage: A company’s strike-off can damage its brand, making it difficult to win back the trust of stakeholders, suppliers, and customers. This harm could seriously impair the business’s capacity to function, resulting in lost sales and profits.
Personal liability for directors: A struck-off company’s directors may be held personally liable for its obligations—a practice referred to as “lifting the corporate veil.” Directors need to be aware of their possible responsibilities and take the appropriate precautions to safeguard their assets.
Loss of legal recognition: A firm that is struck off loses its legal standing and is unable to enter into contracts or conduct business. This obstacle may have a negative impact on corporate operations and create problems for the organization’s continuation.
Difficulty in restoration:It can be difficult to revive a struck-off corporation and frequently calls for legal counsel. The corporation might have to pay off outstanding debts prior to reinstatement, which would put a heavy financial burden on it.

Documentation Required for Strike Off Process

. All directors’ validly notarized indemnity bond (in Form STK 3)
. An accounting statement that lists all of the companies’ assets and liabilities (approved by a chartered accountant)
. An affidavit in Form STK 4 signed by each of the company’s directors
. CTC of Special Resolution (duly signed by all of the company’s directors)
. A declaration of any ongoing legal actions pertaining to the business.

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