Difference Between Striking Off and Liquidation in India
A business can be conducted under multiple forms of units in India. It may be as a partnership, sole proprietorship, limited company, and a limited liability partnership. Every business form has its own advantages and disadvantages. Similarly, there are various methods under which companies get closure in India. Striking Off and Liquidation are two common methods under which the companies can close their business. It means you have two choices to close your business down. It’s either you can apply to be ‘struck off’ or can ‘wind up’ business.
What Exactly is Striking Off and Liquidation?
Striking Off (the name of the company) is one of the convenient methods of closing an existing company. Section 560 under Companies Act, 1956 describes the practice for striking off the names of non-operational firms that are not carrying on any business. When the Registrar observes any of the companies not carrying business or is not under operation, he sends a letter of inquiry. In case if there is no reply within a month, he sends a second letter. The second letter states if there is no reply, a notice to strike off the company name will get issued in the Official Gazette.
Moreover, the company can generate an application with the e-form, along with all the prescribed attachments. If the Registrar gets satisfied with the application’s correctness, then he can proceed to strike off the name.
On the contrary, Liquidation refers to the winding up of a company through which the dissolution of a company happens. In the process, all assets are collected and applied in payment of debts of the company. Upon meeting all such conditions, then the members get to share the remaining sum depending on their contribution to the business.
Points of Difference Between Striking Off and Liquidation
Striking off is only possible if no threats of legal actions exist to the currently running company or no insolvency procedures. It means that the company should be solvent, and all the employees, members, and creditors must get informed about the strike-off.
In case of liquidation, the directors must sign the Declaration of Solvency confirming the company can pay all its liabilities within a specified time.
In the case of Striking Off, if any irregularities arise or a creditor makes a claim at a later date about not getting informed for the company’s closure, then it’s the director who will suffer. It could result in disqualification as a director, financial penalty, and liability for business debt.
For Liquidation, if you sign the Declaration of Solvency, and if the existence of company liabilities emerges later, you could find yourself responsible for those debts.
As compared to Liquidation, the costs of striking off are much less; however, it’s not suitable in every case. Thus, striking off might be a great choice for companies with limited or no assets. Though Liquidation costs significantly more, the benefits could compensate for the overall cost if the company has substantial assets.
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