Introduction
Before starting a company in India (like Pvt Ltd, LLP, OPC or partnership), required to meet the various statutory formalities. Similarly, the company is required to comply with the financial and legal formalities. To strike off a company in India, the business is responsible for settling all provident fund dues and updating the EPF portal. Furthermore, they are required to cancel GST registration and file a final return, clear pending TDS dues, and settle the bank account balance to zero or distribute it to shareholders. This comprehensive guide explores the formalities required for ESI compliance before company strike-off, including the process and documents required.
A Quick Answer Table
- The GST registration must be cancelled before filing the Form STK-2, as the ROC (Registrar of Companies) cross-checks the data with the GST portal.
- During the Filing of Form STK-2 on the MCA portal, the ROC issues the dissolution notice Form STK-7.
- ESIC (and EPFO) regional offices accept the code/registration cancellation or surrender once proof is submitted that the company no longer legally exists.
- Surrender your company’s TAN and deactivate the PAN.
What is ESI Compliance for Companies?
ESI (Employee's State Insurance) compliance in India is a legal formality that is governed by the ESIC under the Ministry of Labour and Employment. Under the Employees' State Insurance Act, 1948, maintaining ESI compliance is mandatory for each establishment/factories with 10 or more employees (in some states, 20 or more employees). The wage limit covered under this rule for the workers is earnings up to ₹21,000 per month (or ₹25,000 for persons with disabilities). Once a company crosses the worker threshold limit, it must register on the ESIC portal and must do so within 15 days. The company is reponsible to maintain updated attendance, wage sheets, and employee registers.
On the other hand, the employers pay 3.25% of the gross wages, and the employees pay 0.75%, which makes the total monthly contribution 4.00%. The total 4% contribution must be deposited online through the ESIC portal by the 15th of the following month. Meanwhile, during a voluntary company strike-off, the companies are required to clear all pending ESI dues, notices, or additional compliances. If these formalities are not fulfilled, you cannot apply to file the form STK-2.
Importance of ESI Compliance During Company Strike-Off
Under Section 248 (2) of the Companies Act, the voluntary company closure process is handled by the Centre for Processing Accelerated Corporate Exit (C-PACE). Meeting ESI compliance before company strike-off is a legal formality. Here are the key reasons why the ESI code surrender procedure matters for businesses:
- Avoids Rejection During E-PACE Verification: The centralized authority (C-PACE) issues a legal public notice in Form STK-6 for 30 days, which also automatically shares with the other governing authorities like the tax department and ESIC. The application is verified by the ESIC and objected to if ESI (Employees’ State Insurance) dues are pending. The application for company strike-off is rejected by the ESIC.
- Accepts the Statement of Accounts (Form STK-8): The companies are required to submit the statements of accounts before filing the form STK-2. The Statements of Accounts must be verified by a Chartered Accountant (CA), and filed in form STK-8, showing “Nil liabilities”. Failure to show the ESI compliances as “Nil liabilities " will render the STK-8 form legally invalid.
- Personal financial and criminal liabilities to directors: Form STK-3 must be filed by the directors of the company during the voluntary strike-off, as it is a mandatory indemnity bond. If hidden ESI liabilities emerge, the directors of the company may face action under Section 85/85A of the ESI Act. But by filing the STK-3, it ensures that the director covers any unknown or sudden claims that emerge after the company status changes to "Struck Off".
- Streamlines Post-Dissolution Code Surrender: The company cannot formally remove the 17-digit ESCI code prior to strike-off, but it can only mark the unit as “closed or inoperative”. The Regional ESIC office issues the formal surrender certificate after the submission of the ROC Dissolution Notice in Form STK-7.
The Registrations Surrendered Before vs After Strike-Off
During the voluntary company strike-off under Section 248 of the Companies Act, 2013, the applicant businesses are required to surrender their registrations via a specific form/process. However, the companies are required to submit their registrations before strike-off and after complete closure. Understand the ESI requirement via this table:
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What Documents Are Required for Company Strike-Off?
The company is required to file the Form STK-2 with the ROC for voluntary strike-off of an entity. It is a process to legally remove the company name from the Registrar of Companies under Section 248(2) of the Companies Act, 2013. Here is the complete checklist of documents required for ESI compliance before company strike-off.
- Board Resolution: A copy of the board meeting agreement, approved and passed by the Board of Directors for company strike-off.
- Special Resolution/ Shareholder’s Consent: Proof of shareholder approval, holding the 75% paid-up share capital via consent letter or special resolution.
- Form STK-2: The primary company strike-off application form submitted to the Registrar of Companies (ROC).
- Form STK-3 (Affidavit): Every director is required to swear individually on non-judicial stamp paper (duly notarized), declaring that the company has no liabilities, pending litigation, or functional operations.
- STK-4 (Indemnity Bond): Executed by every director, an oath to pay and cover any future liability or claim against the company.
- Form STK-8 (Statement of Accounts): Prepared the statement of accounts (filed within 30 days) and verified by a chartered accountant (CA) or cost accountant. The statement showcases nil liability and assets.
- Surrender Proof of Tax Authorities: The GST cancellation order, ensuring that active GST registration has been cancelled, including clear income tax pending compliance.
- NOC from Regulatory Authorities (Optional): Required from the regulatory authority if a company is operated by the RBI for NBFCs, SEBI, IRDAI, RERA, etc.
- Director Identification: Self-attested PAN card of all partners and address proof like Aadhaar card, passport, or voter ID.
- Company Proof: The company proof documents required are Certificate of Incorporation (CoI), the company’s PAN card, or business bank account statement closure proof.
Risks of Neglecting ESI Compliance Before Company Strike-Off
Aligning with ESI compliance is more than a legal formality. However, avoiding ESI compliance can be challenging for those who want to strike off a company. The major risks you may face include:
- Personal Liability for Directors
Non-compliance with the ESI contribution formalities results in possible criminal charges against the director. Under Section 85 of the ESI Act, if the company fails to submit the deductions from employee salary to the government, the director faces possible arrest and imprisonment for 2 years.
- Recovery & Assets Attachment
Under Section 45C of the ESI Act, the recovery officers have the right to attach personal accounts or seize the remaining assets of responsible officers/directors.
- Disqualification of DIN
If found guilty, the governing authority may suspend the DIN (Director Identification Number) of the director. Without a DIN, the director cannot enroll in any other company in the future.
- Filed Application Rejection
It is mandatory to clear all pending dues and show all filings as “Nil” before company strike-off. If ESI is active or not suspended, the scrutiny authority rejects the application.
Conclusion
Once a company meets the worker threshold limit, it becomes liable to register for the ESI (Employees’ State Insurance) registration. The registration covers the specific rules and regulations which must be further clarified before voluntary company strike -off. Before strike-off, the companies are required to meet the financial and statutory formalities. The company must clear the ESI dues and file the final returns before STK-2 form submission. The ESI code must be submitted after the filing of the STK-2 application form. Streamlining the company strike-off process with JustStart as the team that can manage STK-2 filing alongside ESI, EPF, and GST closures end-to-end, so directors aren't left personally exposed.
Frequently Asked Questions
Q1. Can I strike off my company without surrendering my ESI registration?
Ans. Yes, you can file the STK-2 application form to strike off your company; however, all ESI dues, last return filing, and bank account balance must be Nil. The application form is rejected by the ROC if pre strike-off formalities not fullfill like brough the liabilities to zero.
Q2. Is ESI clearance important before filing STK-2?
Ans. Yes, ESI clearance is legally mandatory, like settling the statutory dues and employee liabilities before filing the form STK-2.
Q3. How long does it take for the approval of the surrendered ESI Code?
Ans. It generally takes 2-5 months to approve and deactivate the ESIC code. However, the timeline can be exceeded due to ESIC officer and clearance of pending contributions.
Q4. Do I need a “No Employee” declaration to inactivate the ESI registration?
Ans. Yes, it is mandatory to declare “no employee” status before the company closure (often combined with zero liability declaration).
Q5. Who is personally liable for ESI dues after the company closes?
Ans. Under Indian law, the pending or neglected ESI (Employees’ State Insurance) dues depend on the individual’s role and the specific person who is guilty of default (even the director of the company).
