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CS Executive · Setting Up of Business, Industrial and Labour Laws · Startups and its Registration

Nisha and Rohan run a DPIIT-recognised startup that is insolvent, and its creditors are owed money. Compared with a firm with no debts, which statement best captures the position on exit?

Where a startup owes money to creditors, simple strike off is unsuitable because it is meant for entities without liabilities. The insolvency process under the Insolvency and Bankruptcy Code must be followed so that creditor claims are handled in the statutory order, not ignored or bypassed.

  1. AClosure by mere strike off is unsuitable; the insolvency process under the IBC must be used to deal with the creditors' claimsCorrect
  2. BThe startup may simply stop filing returns and is deemed closed
  3. CCreditors lose all rights once the DPIIT recognition lapses
  4. DThe promoters may distribute assets among themselves before settling creditors

Explanation

Strike off is meant for companies without liabilities. Where debts exist, the insolvency process addresses creditor claims in the statutory order. Stopping filings does not close an entity, recognition does not affect creditors' rights, and paying promoters first is improper.

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