A company that has stopped doing business does not automatically stop carrying legal and financial responsibilities. Even a dormant or inactive company may continue to incur compliance costs, maintain records, and require professional attention simply because it remains on the Register of Companies.
For many such companies, striking off the company’s name can be a simpler and more economical exit route than formal liquidation. But that does not mean every dormant company should be struck off. The right route depends on the company’s assets, liabilities, pending matters and plans for the future.
Under the Companies Act, 2013, voluntary removal of a company’s name is primarily governed by Section 248, while voluntary liquidation is dealt with under Section 59 of the Insolvency and Bankruptcy Code, 2016. The two processes serve different purposes, and choosing between them requires more than simply comparing filing fees.
What does it mean for a company to be dormant?
A dormant company is not necessarily a company that has been shut down permanently.
Section 455 of the Companies Act allows a company formed for a future project, or to hold an asset or intellectual property, to apply for dormant status where it has no significant accounting transaction. The law also covers inactive companies that have not carried on business or operations, or have not made significant accounting transactions, during the relevant period.
Dormant status can therefore be useful where the promoters want to keep the corporate entity alive without carrying on active business.
But there is a catch: dormant does not mean responsibility-free.
The company must continue meeting the requirements applicable to its status, including prescribed filings and fees. For a company that has no real commercial purpose anymore, maintaining that status may simply mean paying to keep an inactive entity alive.
That is where striking off becomes worth considering.
Striking off versus formal liquidation
These two processes are often treated as interchangeable, but they are not.
Striking off under Section 248 is essentially a statutory mechanism for removing a company’s name from the Register of Companies when the company is no longer carrying on business or operations and the legal conditions for removal are met.
A company can apply voluntarily after extinguishing all its liabilities, by passing a special resolution or obtaining the consent of members holding the prescribed percentage of paid-up share capital. The application is made through Form STK-2.
Formal voluntary liquidation, on the other hand, is a more structured winding-up process under Section 59 of the IBC. It involves a declaration by the directors, a members’ resolution, appointment of an insolvency professional as liquidator, liquidation of assets and ultimately an application to the Adjudicating Authority for dissolution.
A dormant company with no assets, no debts and no pending business may have little reason to undertake a full liquidation process.
Why striking off is often cheaper
The biggest cost advantage comes from the simpler structure of the process.
Under the current MCA instruction kit, an STK-2 application carries a government fee of ₹10,000. The application is processed in non-STP mode and is handled through the MCA system for removal of the company’s name.
The overall professional cost will, of course, depend on the company’s records and compliance position. A clean company with no outstanding liabilities, disputes or complicated transactions may require relatively limited work before the application is filed.
Formal voluntary liquidation can be considerably more involved. The process requires an insolvency professional to act as liquidator and includes steps relating to assets, liabilities, creditor interests, reporting and ultimately an application to the adjudicating authority. Section 59 itself requires a solvency declaration and supporting financial information before the liquidation process begins.
So, for a genuinely inactive company, the difference is practical as much as legal.
Why incur the cost of liquidating assets when there are no meaningful assets to liquidate?
But striking off is not a shortcut for unpaid liabilities
This is where some companies get into trouble.
A company cannot use striking off simply to walk away from debts, statutory dues, employee claims or other obligations. Section 248 permits a voluntary application only after the company has extinguished its liabilities.
The law also places restrictions on when an application can be made. For example, Section 249 prevents an application in several situations, including where the company has recently changed its name or registered office, has engaged in certain activities, has a pending compromise or arrangement application, or is already being wound up.
The rules also exclude certain categories of companies from the removal process, including companies facing specified investigations, prosecutions, pending compounding matters, outstanding public deposits or unsatisfied charges.
In other words, striking off works best when the company has genuinely finished its affairs.
What happens after striking off?
Once the Registrar publishes the notice of dissolution in the Official Gazette, the company ceases to operate as a company and its certificate of incorporation is treated as cancelled, subject to the statutory exceptions relating to recovery of amounts due and discharge of obligations. However, dissolution does not erase wrongdoing.
Section 251 specifically addresses fraudulent applications. If an application was made to evade liabilities, deceive creditors or defraud others, the persons responsible can remain liable and may face consequences under the fraud provisions of the Companies Act.
There is also a restoration mechanism. In appropriate circumstances, the National Company Law Tribunal can order restoration of a company’s name to the register.
So the process is cheaper, but it is not consequence-free.
When formal liquidation may make more sense
Striking off is not automatically the better choice.
Formal liquidation may be more appropriate where the company has assets that need to be realised and distributed, creditor issues that need to be dealt with formally, or affairs that require a liquidator’s oversight.
It can also make sense where there is a genuine need for an orderly process of settling the company’s financial affairs rather than simply removing a clean, inactive company from the register.
The starting question should therefore be simple:
Has the company finished its affairs, or does it still have affairs to wind up?
If there are no meaningful assets, no liabilities, no disputes and no future business purpose, striking off may provide a considerably more proportionate exit.
A practical checklist before choosing striking off
Before filing an STK-2 application, the company should review:
- Outstanding liabilities: taxes, loans, vendor dues, employee claims and statutory payments.
- Assets: bank balances, intellectual property, investments, receivables or other property.
- Regulatory matters: inspections, investigations, prosecutions, pending compounding proceedings or unsatisfied charges.
- Corporate records and filings: whether the company’s compliance position needs to be regularised before applying.
- Future plans: whether the promoters may realistically need the company again.
A low-cost closure process is useful only when the company is actually ready to close.
The real cost question
For a dormant company, the choice is not simply between “cheap” and “expensive”. It is about choosing a process that matches the company’s circumstances.
Striking off is often cheaper because it is designed for a company that has little or nothing left to wind up. Formal liquidation is more appropriate where there are assets, liabilities or financial affairs that require a structured liquidation process.
The safest approach is to first establish that the company is eligible for removal, settle its outstanding affairs, and then choose the appropriate statutory route.
For promoters who have carried an inactive company for years without a clear reason to retain it, closing the entity may ultimately be more sensible than continuing to maintain a company that no longer serves a purpose.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.