Company dissolution

The importance of the company dissolution is attributed to a process of the formal and official dissolution of the company. The terms “formal” and “official” imply that the company is no longer kept in public registers. There are several ways to close a business, and each avenue has a slightly different process, but in general, liquidation is the natural result of each of these practices. The two most common ways to dissolve a company are through liquidation or bankruptcy.

Liquidation of a company

Liquidation is a voluntary decision and means that shareholders will vote to close the company (or if there is only one owner, he will choose to). After completing all formalities and submitting all applications, the liquidation procedure can begin. The further procedure varies depending on the legal form of the company and the jurisdiction. For example, some less complex legal forms can usually be resolved within a few days, while with other legal forms the entire process can take up to three months or even longer. Everything is based on the size of the assets, the number of creditors and the overall complexity of the case. Register for bankruptcy The bankruptcy process is usually carried out: it is requested by creditors, third parties or by the owners of the company if a company is unable to pay its liabilities during the liquidation or bankruptcy proceedings. Bankruptcy proceedings take longer than liquidation to go through and most jurisdictions require a court decision to initiate the process. It is important to formally dissolve the company as there are many drawbacks to not doing so and leaving the company inactive. First, you cannot claim ownership of the company. As long as the company is kept in the public register, it is recognized as a legal person. Second, there can be legal ramifications if a company is not wound up. For example, in some countries, if you do not dissolve the company, you will have to pay a fixed amount of corporate income tax annually, even if the company is dormant and not engaged in commercial activities. Other regular obligations may have to be observed, e.g. annual reports, bookkeeping, auditing, etc.

Reasons for company dissolution

There can be many different reasons to dissolve a company. One of the reasons could be that the company is no longer having profit and shareholders do not see a way how to bring the company back to the market, thus they decide to liquidate the company.

Another reason could be that the owner wants to re-structure a company to an absolutely different legal or business form. For example, the business is expanding and an individual merchant form is no longer an effective option, so the owner decides to reorganize the form to an LLC. Alternatively, the company has too many debts and in order to avoid it partially, the bankruptcy procedure must be initiated. After the process is over, a new company can be incorporated again.

Person performing the dissolution

In most of dissolution procedures, the process will be exercised by a liquidator - a special person appointed to dissolve a company. Usually, liquidator can be one of the directors or another appointed person, who is chosen by shareholders. Company decides who will dissolve the company at a shareholder meeting and includes it in an official resolution. The resolution along with other documents required, must be submitted to local commercial register. In case of insolvency proceedings, the insolvency administrator is usually appointed by the court.

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Last-modified: 2021-07-13 (火) 01:10:27 (102d)