Here are some
of the legal points you need to keep in mind to ensure that you make a clean
exit.
by Mr.
SAKINA BABWANI
When an
entrepreneur sets up his / her dream venture,the last thing on his / her mind
is looking for ways to wind up the business. Despite the rosy projections you
may have about your pet enterprise, it helps to indulge in a dose of reality.
Pune-based Ms.
Deepa Mehta learnt this the hard way.In 2007, she set up a website design firm
in partnership with her childhood friend, but barely 5 years later, she was
forced to shut shop. My husband was transferred to another city, so I wanted to
opt out .However,i t was not easy since we had no clue how to go about it. We
wasted valuable time searching for a lawyer and working out a deal that suited
both the partners, she says.
One of the
most important things that a business blueprint must include is an exit policy,
says Mr. Aakansha Joshi, a senior associate with law firm, Economic Laws
Practice. You never know when you may have to use it, she adds. Heres a look at
the ways of dissolving different types of business structures.
Sole
proprietorship..
This form of business
is the easiest to close. Since it is not governed by any statute, you can wind
it up whenever you like. However, you still need to settle your accounts,
including the liabilities and outstanding credit, from the funds generated by
the business. Remember, if its a loss-making business, creditors can stake a
claim to your personal assets to recover their money.
If you are
not in a position to pay your liabilities, explore the option of filing for
insolvency under the provisions of the Insolvency Act. In such a case, your
creditors will be redirected to the court, which will decide how the debts are
to be settled.
Partnership
firm..
The
dissolution of a partnership is more complex since various partners are
involved. If, at the time of forming the firm,the partners agree upon the
conditions under which the firm is be dissolved,this is incorporated in the
form of a contract. Whenever such conditions arise, the firm is automatically
dissolved.
If, however,
there is a dispute among members, any partner can file a case in the court,
which then decides on the dissolution. If there is no contract between the
partners regarding the ending of partnership, any partner can give a notice for
its termination, following which the partnership comes to an end. Where there
are only 2 partners involved, and one of them dies, becomes permanently
disabled, or / mentally deranged, the firm is automatically dissolved.
Of course,
you will have to settle your finances before closing down. As in the case of a
proprietorship, creditors can proceed against the individual partners assets to
recover their loans, unless it is a limited liability partnership.
Franchise..
The grounds
for terminating a franchise are usually incorporated in an agreement. The
franchiser can terminate the contract if
any of the operating procedures, as stated in the agreement, are violated. Even
you can end the contract by sending a written notice to the franchiser,
informing him of your intention to not continue with the franchise.
Alternatively,
you can sell the franchise to a third person,but make sure that
your contract
with the franchiser permits you to do so.If not,you could lose out on the
compensation that you may be entitled to.As in any other type of
organisation,it is your responsibility to settle the finances.
However, if
you have declared yourself bankrupt, the franchiser himself is likely to
terminate your contract. Similarly, if you are unable to pay your employees or
maintain the required health & safety standards, the franchiser reserves
the right to end the contract.
Company..
Among the
various types of firms, a companys closure is probably the most tedious. As it
is governed by The Companies Act, there is a standard procedure in place for
winding up a company. It can be done either voluntarily or/ by a tribunal.In the case of the former, the
members pass a resolution in a general meeting, stating the reasons for doing
so. If the company is in a position to pay its debts,it must state that it will
do so within three years of closing.
Under certain
circumstances, such as a default in delivering the statutory report or the
company failing to commence its business within a year of incorporation, a
company is closed down compulsorily. When a company is unable to pay its debts,
the dissatisfied creditors can file a winding up petition against it.
Once the
company has been dissolved, the court appoints a liquidator to take charge of
the company. He collects the companys assets, settles the debts, and
distributes the surplus, if any, among the members. Once the company has been
dissolved, its name is struck off the register of companies.
Trust..
As the
settler of a trust, you can list out the conditions under which it will be
terminated. Once the trust is wound up, all its assets are to be distributed
among the beneficiaries, or / settled in
any other way, as stated in the trust deed. You will have to notify the trusts
bankers, who can then close the bank accounts. Besides, a final account will
have to be drawn for the trusts liabilities,if any.
From ET
Wealth
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