How to shut down a startup in India

A company is a legal person, separate from its founders. Stopping work, closing the office and letting the website lapse does not end it. The company keeps existing on the government's register, and keeps its duties: yearly filings, tax returns, audits and bank charges. Shutting down properly means taking the company off the register through a legal process.

This matters because a dead but registered company keeps collecting penalties. Late fees for missed filings grow every year, and directors can be disqualified for not filing accounts. Closing it cleanly protects the founders' record, which matters if they start another company or want a bank loan later.

There are three broad routes under Indian law, as of October 2026. Each suits a different situation.

The first is striking off the company's name under Section 248 of the Companies Act, 2013. The company applies to the Registrar of Companies on Form STK-2. This is meant for companies with no business and no liabilities. The second is voluntary liquidation or winding up, where the company sells what it owns, pays what it owes and shares any surplus. The third is insolvency under the Insolvency and Bankruptcy Code (IBC), used when the company cannot pay its debts.

• Strike-off: cheapest and quickest, only for a company with nothing left to settle.
• Voluntary liquidation: for a company that can pay all its debts but wants to close in an orderly way.
• Insolvency: for a company that cannot pay its debts, started by the company or by a creditor.

Strike-off is the simple route for a startup that never took off or went quiet. In broad terms the company must have had no business for the past two years (or never started within a year of being set up), owe nothing and have no court cases against it. Directors pass a board resolution, shareholders approve through a special resolution, and the company files STK-2 along with statements showing no assets or liabilities, usually backed by an affidavit and a certified statement of accounts.

The Registrar then publishes a public notice so that anyone with a claim can object. If nobody does, the name is removed and the company is declared dissolved. Filing is handled centrally by the government's processing centre. Timelines and fees vary and have been changed, so check the current figures on the Ministry of Corporate Affairs portal. A struck-off company can sometimes be revived through the National Company Law Tribunal (NCLT), so the exit is not always final.

Then strike-off is the wrong tool. A company with bank balance, equipment, intellectual property or unpaid bills must be wound up. In voluntary liquidation the directors declare that the company can pay all its debts in full within a set period, the shareholders approve, and a licensed insolvency professional is appointed as liquidator. The liquidator sells the assets, pays creditors in the legal order and returns anything left to shareholders.

Investors usually sit near the bottom of that order. Employees' dues, taxes and secured lenders come ahead. Preference shares and liquidation preference clauses in the shareholders' agreement decide how the surplus is split among investors. Our guide on liquidation preference explains how that works.

If liabilities exceed what the company can pay, the IBC takes over. A creditor can start the process after a default, and the company can start it too. The case goes to the NCLT. Under the corporate insolvency process, an insolvency professional takes control of the company, and creditors vote on a rescue plan. If no plan works, the company is liquidated.

For small companies, the IBC also has quicker tracks, and there is a separate fast-track route for certain categories of companies. The rules have been amended several times, so a startup near this point needs a lawyer, not a guide. Our page on insolvency and the IBC covers the process in more detail.

Closing in the right order saves trouble. Tell the board, investors and lenders early. Most funded startups have a shareholders' agreement that needs investor consent for winding up, and lenders may have claims on assets.

Then clear the practical items. Pay salaries, notice pay and other employee dues, and close provident fund and ESI accounts. File final GST and income tax returns and cancel the GST registration. Settle vendors, landlords and customer refunds. Cancel licences and trademarks you do not want to keep, or transfer them. Back up code and records, because the law expects books of account to be kept for some years after closing.

• Get written consent from investors where the agreement needs it.
• Pay employee dues and close payroll registrations.
• File all pending annual returns and tax returns.
• Cancel the GST registration and other licences.
• Close bank accounts only after the last payments clear.
• Keep accounts and records for the legally required period.

Investors lose some or all of their money. Whether they get anything back depends on the assets left after creditors are paid. Many startup shutdowns return little or nothing, and some return only the cash left in the bank.

Employees with unpaid salaries are creditors, and in liquidation their dues rank high. Employee stock options usually lapse unexercised, because the shares become worthless. Founders are not personally liable for the company's debts in a private limited company, except where they gave personal guarantees, for example on a bank loan, or acted fraudulently. A struck-off or liquidated company does not erase the directors' obligations for the period it was active.

StopDown's news tracks closures and layoffs across the sector. Common reasons are running out of cash before the next round, a market that did not grow as expected, high spending to win customers that never paid back, or a regulatory change. Some founders choose to return money to investors early rather than burn through it. Others sell the team or technology to another company in an acquihire, which can be a gentler exit than closing the doors.

This guide describes the legal process only. Rules, fees and timelines change, and this is not legal or tax advice, so check with a company secretary, chartered accountant or lawyer before you file.