The running joke among Indian entrepreneurs is that it’s easier to get a divorce than to shut down a company. And the experience of Stayzilla co-founders shows that it can get extremely messy.
Closing a company in India can take years, though opening one — or many — is easy enough, according to Hawala Report
When Nagarajan decided to close his edtech startup Eduraft in 2013, a year after setting it up, he simply ceased operations, returned investor money, and moved on.
Two years later, the auditors at Raju Kothari's current venture NinjaCart —his third attempt, and an agri-marketing platform that’s managed to raise funding — advised him to formally close Eduraft.
It’s been four years since he decided to take them up on that advice but he’s still trying to wind up the business. “Since we didn’t have any creditors and had returned our investor money, we thought we were good to go.
Later, we found out that it is not as simple as that. Regulatory compliance requires a procedure to be followed while returning money. Not shutting an earlier venture can create roadblocks for the current venture. We are now getting ready to file the winding-up petition,” says Kothari
While being an entrepreneur seems exciting and fail-fast is the new refrain, India’s archaic laws and labyrinthine processes of liquidation make dealing with shutting down a startup far harder than handling the emotional struggle of giving up.
And dealing with external stakeholders such as vendors and landlords — as in the case of Stayzilla — can complicate matters further. “Closing a company under a liquidation process can take years.Abandoning a business is not the solution. Defaults in company law compliance and inherent shareholder obligations will lead to a black mark in the SEBI records.