Sometimes a company reaches a point where dissolution is inevitable. The dissolution of a company is traditionally associated with a liquidation process. This time, however, we will look at how a company is dissolved without liquidation.
Sometimes a company reaches a point where dissolution is inevitable. The dissolution of a company is traditionally associated with a liquidation process. This time, however, we will look at how a company is dissolved without liquidation.
Dissolution is one of the important steps in the life cycle of a company. In most cases, the dissolution of a company takes place through liquidation, where the company’s assets and liabilities are settled before it is completely wound up. However, there is also the alternative of dissolution without liquidation, which allows for a smooth transition of assets, rights and obligations to a legal successor. The process of winding up a company without liquidation is often more efficient and quicker than traditional liquidation.
Let’s first take a brief look at liquidation. This is the process by which a company is dissolved without a legal successor. This means that its assets are sold off or otherwise monetized and the proceeds are used to pay its liabilities. The remaining assets are then divided among the shareholders. Conversely, when a company is dissolved without liquidation, the assets are transferred to another entity, so that all the rights and obligations of the company continue, but under a different owner.
Dissolving a company without liquidation requires thorough preparation of the entire project, whether you are planning a merger or another dissolution. We will help you prepare all the documentation and warn you about the risks of each step to avoid potential problems.
The dissolution of a company without liquidation is mostly suitable for companies that want to optimize their structure, reduce the administrative burden or want to achieve tax savings. This procedure can be used in various types of companies, including limited liability companies (s.r.o.) and joint stock companies (a.s.).
There are several ways in which a company can be wound up if it is not liquidated. These are:
Read more about the different forms of dissolution without liquidation later in this article.
The basic legal regulation governing the dissolution of a company without liquidation is Act No. 90/2012 Coll., on Commercial Companies and Cooperatives(the Commercial Corporations Act). This Act describes in detail the various forms of company conversions and sets out the procedures for their implementation. Furthermore, Act No. 125/2008 Coll., on Transformations of Companies and Cooperatives, which specifies the processes of mergers, transfers of assets and divisions, is important.
Or the Law on Commercial Corporations specifies the conditions for company conversions. The Civil Code is in charge of protecting the rights of creditors and the obligations transferred to the successor entities. And the Law on Public Registers sets out the requirements for the registration of changes in the Commercial Register.
Tip: Sometimes, on the other hand, companies grow and a holding company with many subsidiaries is created. Read how such a company works and who has to obey whom in what.
One of the reasons why business owners resort to dissolving a company without sending it into liquidation is for economic reasons. By doing so, entrepreneurs try to optimise their business structures and reduce the administrative burden. By merging with another company or splitting up an existing one, they can achieve more efficient management, make better use of resources and reduce the costs associated with running multiple entities.
Tax considerations also come into play. Company conversions can bring significant tax savings to their owners, for example by optimising tax liabilities or by utilising tax losses. In this case, however, all tax implications need to be analysed very carefully and the planned steps need to be consulted with lawyers specialising in tax law. If you need advice, we will be happy to help.
And then there are the legal and business reasons. Conversions within a group of companies or mergers with another company can improve a company’s competitive position in the market. It can also, for example, expand its product or service offering and strengthen its capital base. Often these steps also entail simplifying the organisational structure and improving the management of the company.
However, dissolution without liquidation is not always appropriate. If a company has too many liabilities, is currently involved in litigation, or is facing other legal problems, it will probably be difficult to find new owners and merge with another entity. In such cases, liquidation may be a much more transparent and fair solution for all parties involved.
As we mentioned above, one of the things that can happen to a company is a merger. This is done either by merging or amalgamating.
In a merger, one or more companies are dissolved and their assets are transferred to another existing company. In the case of a merger, two or more companies are dissolved and a new company is created to which their assets are transferred.
The merger procedure is not simple, first a merger project has to be prepared. This must contain the elements provided for by law, such as the identification of the companies involved, the exchange ratio of shares or stocks and the date from which the acts of the disappearing company are considered, from an accounting point of view, to have been carried out on behalf of the successor company. It also needs to inform the shareholders and creditors that some merger is planned. This is followed by notarization and filing a petition with the commercial register. We have discussed the merger in more detail in our article on company conversions.
Tip: Do you own a share in a company or cooperative and would you like to transfer it to someone else? You can find all the information you need in our article on share transfer.
This method of dissolution of a company without liquidation is only possible for companies with a single shareholder. Most often, these are single-member limited liability companies, where the owner of the company takes over all its assets, rights and liabilities.
How does the transfer take place?
Thus, upon transfer, all the company’s assets pass to the shareholder without the need for further settlement. However, the shareholder may be liable to pay property acquisition tax or other tax liability depending on the specific situation. At the same time, however, it may benefit from the decision of the sole shareholder.
A division of a company can take place, for example, by splitting the original company into several new entities that take over its assets, rights and liabilities. In the latter case, part or all of the company’s assets may be transferred to one or more existing companies.
In the case of a division of a company, a project is again required. We will be happy to prepare documentation that clearly sets out how the division of assets and liabilities will take place between the new or successor companies. Bear in mind that you must also give public notice of the planned division so that creditors have the opportunity to object to it. Only after these matters have been settled can the distribution of assets, rights and liabilities between the successor companies take place.
Dissolution of a company without liquidation means that the company does not cease to exist altogether, but its assets, rights and liabilities are transferred to another entity. This process is faster and more efficient than a traditional liquidation because it allows the business to continue under another entity. The most common forms of such dissolution are a merger (amalgamation or merger with another company), transfer of assets to a single shareholder or division of the company into several successor entities. This procedure is often chosen for economic, tax or organisational reasons, for example to optimise the business structure or reduce the administrative burden. The legal framework is provided by the Act on Commercial Corporations and the Act on Conversions of Commercial Companies and Cooperatives.
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