SB (Business) 10 April 2025

Closure of a private limited company with loss in balance sheet

I want to know if a private limited company has accumulated loss in balance sheet (in form of debt from one of the promoter, which was basically investment made by the promoter to meet the operating expense of the company as it was not making enough revenue to run itself), is it not possible to close the company at ROC?

I was told by CA that before closing the company, all debts should be paid off (even if the debt is from the promoter). Secondly, if the promoter writes of the debt, then the company becomes profitable (because the debt amout converts into income) and it has to pay tax accordingly!

Is it the case? Why a promoter should keep a loss making company? Does it make sense for ROC to keep the company active whereas there is no business activity (and no compliance as well).

What the legal experts say in this?

Reply Follow

5 Replies

T. Kalaiselvan, Advocate (Advocate) 10 April 2025

your auditor has properly advised you however you are not satisfied with the proper adivse rendered instead you are raising irrelevant questions which are not maintainable in law.

if there are certain procedures of law to be observed, you cannot agitate them for your own convenience

Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 10 April 2025

Closing a private limited company with accumulated losses in India involves several steps and considerations.

Key Requirements for Closure -

*Settling Debts and Liabilities*: All debts, including those owed to promoters, must be settled or cleared before initiating closure proceedings. -

*Filing Tax Returns and Financial Statements*: Ensure all tax returns and financial statements are up to date and filed with the relevant authorities. -

*No Assets or Liabilities*: The company should have no assets or liabilities, or these must be fully distributed or settled.Impact of Promoter Debt Write-Off If a promoter writes off their debt, the company's financial statements will reflect this as income, potentially making the company appear profitable.

This could lead to tax implications, as the company may be required to pay taxes on this "income". Reasons for Keeping a Loss-Making Company Promoters might choose to keep a loss-making company active for various reasons, such as: -

*Future Business Prospects*: Anticipating improved financial performance or new business opportunities. -

*Maintaining Control*: Retaining control over the company and its assets. -

*Tax Benefits*: Utilizing tax losses to offset future profits. ROC's Role in Company Closure The Registrar of Companies (ROC) plays a crucial role in the closure process, including: -

*Reviewing Closure Applications*: Ensuring all requirements are met before accepting closure applications. -

*Issuing Closure Notices*: Notifying relevant parties of the company's closure. -

*Maintaining Company Records*: Updating records to reflect the company's closed status. Closure Options There are two primary closure options for private limited companies in India: -

*Defunct Company Closure*: For companies that have not commenced business within a year of incorporation or have been inactive for two consecutive financial years. -

*Voluntary Strike-Off*: A voluntary process where directors file for closure under Section 248(2) of the Companies Act, 2013.

1 Like

R.K Nanda (Advocate) 10 April 2025

contact your CA for proper guidance.

SB (Business) 25 April 2025

Thank you Rama chary Rachakonda for detailed explanation, much appreciated. I shall be grateful if you could advise if the key requirements for closure mentioned are applicable to both 'defunct compnay closure' and 'voluntary strike-off' ? The company in this case was incorporated in 2016 and is lying defuct since 2022. All compliances such as annual audit, balance sheet and GST return (zero return since defuct state) has been maintained. Thanking you in advance

Rama chary Rachakonda

Read more at: https://www.lawyersclubindia.com/forum/closure-of-a-private-limited-company-with-loss-in-balance-sheet-237555.asp#reply