07 June 2022
How should the surplus cash be treated incase of filing of an application under STK-2. The company has not started its business and wants to wind up. I understand that the law requires a NIL Balance Sheet i.e Capital on one side and P&L on the other, however incase the company has surplus Cash, will it be distributed to the existing shareholders and if yes, will the capital reduce to that extent?
10 July 2024
When a company decides to wind up and file for strike-off using Form STK-2, there are specific considerations regarding how surplus cash should be handled, especially if the company has not commenced its business operations.
### Treatment of Surplus Cash:
1. **Distribution to Shareholders:** - If the company has surplus cash, it can be distributed to the shareholders before filing for strike-off. This distribution typically takes the form of dividends or repayment of capital, depending on the structure of the company and the provisions of its articles of association. - Before distributing any surplus cash, ensure that all liabilities of the company, including statutory dues, creditors, and other obligations, are settled. This is crucial to avoid any future complications or liabilities.
2. **Impact on Capital:** - When surplus cash is distributed to shareholders, it usually results in a reduction in the company's capital. This reduction reflects the return of capital to shareholders. - For instance, if the company has surplus cash of ₹1,00,000 and decides to distribute it to shareholders, the capital will decrease by ₹1,00,000. This reduction needs to be reflected in the company's books and records.
3. **Preparation of NIL Balance Sheet:** - As part of the strike-off process (Form STK-2), the company is required to prepare a NIL Balance Sheet, which means the assets should equal the liabilities. - The surplus cash, after distribution to shareholders, should ideally reduce the assets of the company to reflect a NIL balance.
### Steps to Follow:
- **Resolution:** Obtain a resolution from the Board of Directors authorizing the distribution of surplus cash to shareholders. - **Shareholder Approval:** Hold a general meeting of shareholders to approve the distribution. - **Documentation:** Prepare the necessary documentation, including dividend vouchers or repayment acknowledgments, to formalize the distribution. - **Accounting Entries:** Record the distribution in the company's accounting records, adjusting the capital accounts accordingly. - **Strike-off Application:** File Form STK-2 with the Registrar of Companies (RoC) after ensuring all legal requirements, including the distribution of surplus cash, have been completed.
### Professional Assistance:
It's advisable to seek guidance from a qualified company secretary or a legal professional specializing in corporate matters to ensure compliance with all legal and regulatory requirements. They can assist in drafting resolutions, preparing documentation, and navigating the process of winding up and strike-off smoothly. This ensures that the company's dissolution is conducted in accordance with the law, protecting the interests of shareholders and avoiding any future liabilities.
CAclubindia
