Winding Up of Company

Winding up or liquidation means end of life of a company. On liquidation the working of the company is
stopped and the artificial person created by the company law is brought to an end. An administrator, called
a liquidator, is appointed and takes control of the company, collects its assets, pays its debts and finally
distributes any surplus among the members in accordance with their rights. Thus the liquidation of the
company is the process of putting and end to the life and during this process the management and control
of the company passes on to an administrative, called liquidator who realizes the assets of the company,
makes payment of the debts of the company and finally distributes the surplus if left among the members of
the company in accordance to their rights in the company. It may be added that the order for winding up is
passed by the court who appoints the liquidator. After the appointment of the liquidator all rights relating to
the management, direction and control of the company pass on into the hands of the liquidator. He sells the
assets of the company and makes payment to the creditor out of the sale proceeds. In the company law
detail procedure of liquidation has been prescribed which must be observed by the liquidator. If there is
shortage of funds he has to make different type of payment in the following order:
 Payment of creditors
 Payment of liquidator
 Payment of Debentures
 Payment of Shareholders
 Methods of Liquidation
Company is created by law therefore, its end is also brought about by law. According to the company law,
liquidation can be in the following three ways:
 Compulsory Winding Up by the court
 Voluntary Winding Up Without Intervention of the Court
 Voluntary Winding Up under the Supervision of Court

Compulsory Winding Up by the court : In some circumstances the court orders compulsory winding up
of a company. For example
 through a special resolution
 unsatisfactory report of Statutory meeting, time period of conducting statutory meeting
 if business is not started within the year of incorporation
 if required number of members are not completed
 if company is unable to pay its debts

Voluntary Widening up without intervention of Court: The voluntary winding up by members or

creditors themselves without going to the court. However, application may be made to the court for any
direction when necessary. Following are the circumstances of voluntary winding up by company:
 The fixed life time of the company has come to an end.
 When the company has passed special resolution for voluntary winding up.
 When it is decided that business is not in the interest of the company
Voluntary Winding Up under the Supervision of Court: In voluntary winding up the court does not
intervene but, on an application from either the creditors or the shareholders of the company, the court may
order for supervision of the process of liquidation. Ordinarily, such an order is passed when the liquidator
show partially or is negligent in realizing the assets o when the provisions relating to the winding up are not
being observed or when the resolution for voluntary winding up was obtained by fraud.

Capital Of the Joint Stock Company

For raising capital a public limited company has to collect minimum subscription. Whatever amount is
received be a company from sale of shares that is collectively called share capital. Share capital can be
divided into different categories which is required to be shown in the annual return of the company. Various
categories of share capital are the following:
Authorized Capital: The maximum amount of share capital which a company is authorized to raise by
issuing the shares. It is mentioned in the capital clause of the memorandum of association.
Issued Capital: Out of the authorized capital, the amount of share capital which is issued to the public for
subscription is called issued capital.
Subscribed Capital: The part of the issued capital for which applications are sent by the public and which
are accepted is called subscribes capital.
Paid Up Capital: That part of subscribed capital for which shares are issued against share application is
called paid up capital.
Reserve Capital: Sometimes the company decides through a special resolution that a part of the capital will
be demanded from the shareholders only when the company is to be liquidated and there is a need of money
called reserve capital.

Shares
A share is a part of share capital. The capital of a company is divided in several small units and each such
unit is called a share. Owners of the company are known as shareholders. The profit received on shares is
called dividend. Total capital received on shares is collectively called stock.
Classification of Shares: Main types of shares in many countries according to various rights and facilities
are:
Preference Shares: Those shares which are given preference over other type of shares as to payment of
dividend and also as to repayment of capital in the event of liquidation are called preference shares.