Is your company not prospering? Have you and your partners decided to close the company and send it into liquidation? Take us through step by step how to do it.
Is your company not prospering? Have you and your partners decided to close the company and send it into liquidation? Take us through step by step how to do it.
Quick overview:
A limited liability company is dissolved by a decision of the general meeting in the form of a notarial deed. The company enters into liquidation, a liquidator is appointed, debts are settled and after distribution of the liquidation balance the company is deleted from the Commercial Register.
Not sure if liquidation is the right solution for you? Let a lawyer assess the situation – we can help you choose the safest course of action.
Dissolution of a limited liability company (s.r.o.) can happen in several ways. The voluntary options are the decision of the shareholders or the general meeting, the achievement of the purpose for which the company was established or the expiry of the period for which it was established. Involuntarily, the company may be dissolved by a court decision. In the following we will focus exclusively on the first variant, i.e. the liquidation of a limited liability company based on the decision and will of the shareholders.
Some entrepreneurs have long since ceased the activities of their company, but the company as such exists and is, so to speak, “on ice”. This is of course possible, but its owners or partners should bear in mind that even this dormant company requires certain costs. It is still necessary to keep accounts, file tax returns and produce financial statements, even if this is more of a formality.
The dissolution of a limited company to some extent replicates or follows on from its formation. Just as the registration in the commercial register is preceded by a memorandum of association or a deed of incorporation in the form of a notarial deed, the process of winding up a company has several stages.
Whether you are advising on a routine business law matter or have reached the point of needing to liquidate a business, regular consultation with an attorney will help guide your decisions and legal actions in the right direction.
The first step leading to the dissolution of an LLC is its dissolution. This is followed by the process of its liquidation, and once this is completed, the company may be dissolved and cease to exist. Although dissolution, liquidation and winding up are terms that may be used interchangeably in common parlance, when dealing in the corporate law environment it is essential to observe precise terminology, otherwise confusion can easily arise.
Dissolution of a limited liability company (Ltd.) is a key step in winding up its existence, but it can also happen without liquidation. Such a process is referred to as dissolution without liquidation. This procedure is possible if the company is transferred to another legal entity (e.g. merger, transfer of assets to another company) or if its activities are terminated in a manner other than liquidation.
If it is decided to dissolve a company but there is no need for liquidation, the company may be dissolved by other legal steps.
The dissolution of a limited liability company should be decided by agreement of all its shareholders. However, the articles of association may provide that thegeneral meeting has the power to dissolve the company. In such a case, the approval of at least a two-thirds majority of the votes of all the shareholders is required. In both cases, a notarial deed is required.
The decision to dissolve the company can still be changed subsequently, but only until the purpose of the liquidation is fulfilled. On the basis of the decision to dissolve the company, the company enters into liquidation.
The dissolution of the company is followed by liquidation. The only exception would be if the entire assets of the company are transferred to another entity (e.g. merger) or if there are no assets.
If you are not sure whether your company is no longer insolvent, we recommend that you assess the situation legally first. Filing for liquidation instead of insolvency may mean that the managing director is personally liable.
The aim of the liquidation process is to settle the company’s relationships, i.e. assets and debts to third parties, and to pay any balance to the shareholders. In this process, it is necessary to protect creditors first and foremost, but of course the law also considers the protection of shareholders.
The protection of creditors is primarily served by a provision of the law which imposes the obligation to inform all known creditors. Unknown creditors are then invited by the liquidator to submit their claims by means of a notice published in the Commercial Gazette. The notices must be published repeatedly, at least twice, with a two-week interval between each notice. In the notice, the liquidator shall set a time limit for the company’s creditors to lodge their claims, which shall not be less than three months after the publication of the second notice.
Thus, liquidation does not apply to over-indebted companies whose debts are usually settled in insolvency proceedings. In practice, liquidation in the cases we have described usually takes place in a company with no employees and with discontinued operations. It is therefore more of an administrative and accounting process.
If the company has employees, the liquidator must pay them the wages owed and any severance pay under the Labour Code. However, liquidation itself does not mean that their claims automatically take precedence over other debts – different rules apply only in the case of insolvency.
Tip: Need to check if your business partner is in insolvency proceedings? Are you closing an important deal and need to check your business partner well? Use the public registers. In our article, we advise you on what can be found in them and how to proceed if the counterparty is indeed in insolvency.
After the company enters into liquidation, only those steps can be taken which lead to the fulfilment of the above-mentioned purpose of liquidation. The prefix ‘in liquidation’ must also continue to be used in commercial and official communications.
The liquidation is carried out by a special body, the liquidator. Only a person with full legal capacity and good character who has not been convicted of a deliberate criminal offence committed in connection with the business or its object may become a liquidator. A legal person may also be appointed liquidator, but then its authorised representative must meet the requirements. However, the liquidator does not necessarily have to come from outside the company, but can also be a shareholder or managing director. Again, this is an important difference from an insolvency administrator and insolvency as such.
The liquidator is appointed by the body that decided to dissolve the company, usually the general meeting. If it fails to appoint one, the court appoints the liquidator. This function may be terminated either by the liquidator’s resignation of his own volition, by his death (or the dissolution of the legal entity) or by the end of the liquidation.
The most common mistake is the appointment of a “formal” liquidator without experience in accounting and responsibility for filing an insolvency petition. If you are unsure whether you can handle the role, it is advisable to contact a solicitor.
The liquidation process often takes a few months, but can extend over several years. It depends primarily on the current state of the company’s assets and whether the company has debts.
As we mentioned above, an important moment in the liquidation process is the notification of the entry into liquidation to the creditors.
At the same time, the financial statements as at the date preceding the entry into liquidation are drawn up. This should include a detailed inventory of assets and liabilities.
On the basis of these documents, the liquidator then draws up an opening balance sheet and an inventory of the company’s assets. This includes all assets and all debts and can be requested by any creditor.
The key task of the liquidator is to monetise the so-called liquidation assets of the company. This can be done by auction, outright sale or other means. The choice in this case is up to the liquidator, who acts with due care.
The claims which are subsequently satisfied from the money received have a statutory order. These are:
The debts should be settled as they fall due, but it is also possible to agree on their early repayment. The liquidator may also offer the creditors the unmonetized liquidation assets to be taken over for the payment of debts. This is done if the entire liquidation estate has not been monetised.
In practice, we often see that it is not the liquidation decision itself that takes the most time, but the tracking down the accounting documents and the closing of the old contracts. In the case of companies that have been “on ice” for several years, the process is often significantly longer precisely because of the lack of documentation.
Have all known debts been paid?
Have all tax returns been filed?
Has a notice to creditors been published?
Has the liquidator’s final report been approved?
Has a petition for striking off been filed with the Registrar of Companies?
Once all legal and financial relations of the company have been settled, the liquidation may be terminated. The liquidator shall draw up a final report on the liquidation.
It includes, in particular, information on:
The financial statements are also drawn up at the same date.
On the date preceding the company’s entry into liquidation and on the date of the end of the liquidation, the tax period ends. The company in liquidation must therefore file a tax return, normally within 3 months of the end of the tax year; the deadline is 4 months for compulsory electronic filing and is extended to 6 months if the return is filed through a tax adviser or if the company is required to have its accounts audited.
The accounts, the liquidator’s final report and the proposal for the use of the liquidation surplus shall be submitted to the body which elected the liquidator for approval. The liquidation shall end with the application of the liquidation balance.
Within 30 days thereafter, the liquidator shall submit a proposal for cancellation. In addition to the documents referred to above, the proposal shall be accompanied by the accounting documents which the company is required to publish in the collection of documents and documents certifying the publication of the notice of liquidation in the Commercial Gazette. The tax office must give its consent to the cancellation. The deletion of the company from the Commercial Register shall terminate the company.
How to terminate a shareholder’s participation in a limited liability company? Find out in the next article.
Do you want to dissolve the company safely and without the risk of personal liability? We will prepare complete documentation, represent you before the notary and the registry court and look after the tax and insolvency context. Contact us.
The dissolution and liquidation of a limited liability company is a process that begins with a decision by the shareholders to dissolve the company, followed by its liquidation. The liquidation is used to settle all assets and debts, with the liquidator responsible for monetising the liquidation assets and settling claims, with a set order of liquidation costs, employee and creditor claims. The liquidation process, which can last from several months to several years, ends with the preparation of a final report, financial statements and a proposal for the distribution of the liquidation balance, which leads to the filing of a petition for the company’s removal from the commercial register and its dissolution.
Usually several months, but at least three months due to the legal deadline for creditors to register.
The basic costs consist of notarial registration, publication in the Commercial Bulletin and the liquidator’s remuneration, if any.
Yes, but if the company is insolvent, you must file for insolvency.
Yes, financial statements are prepared both on entering liquidation and on leaving liquidation.
Only by deletion from the commercial register.
Yes, if it meets the legal conditions.
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