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How to Close or Dissolve a Limited Company?

  • Posted 19th June 2020

How to Close or Dissolve a Limited Company?

To dissolve a Limited Company that has decided to cease its activity, a dissolution process must be carried out in order not to continue paying the corporation tax.

A company, despite having ceased its activity, has to continue paying its taxes. It does not matter if you no longer have workers or income, you must carry out the process of dissolution of the Limited Company, or in its absence of inactivity (it allows you to be a time without operating but you can recover it later), to stop facing your tax obligations.

For debts:  in the event of not being able to meet the payments, or refinance the debts to continue operating, the company must be dissolved. There is no other option, since to be able to declare it inactive you must be up to date with all payments.

Due to cessation of activity: when the partners, for whatever reason, decide to close the company. It would only be avoidable in the event that one of the partners, or a new one, bought the majority of shares and decided to continue operating with it. In this case, you can declare it inactive and restart the activity later.

The company dissolution process is the same for either case. To close a company you must carry out the following steps:

1-Dissolve the Limited Company

To begin, the administrator must convene a meeting to approve the dissolution agreement and make it public. To be public, it must be entered in the register and added to its corporate name ” in liquidation “. This name will remain until the last day.

2-Liquidate the Limited Company

The settlement process is now open. The administrator must leave his position and put in front of a liquidator who supervises the entire process. The liquidator may be the one who previously served as administrator, but must resign from her previous position to be considered valid.

Inventory and balance : the liquidator must carry out the inventory and the balance on the day the liquidation began. It cannot alter any data and must reflect the real situation of the company.

Operations : You must end the operations in progress and the previous ones to end your activity. This is done so that the company remains inoperative.

Debts : pay the debts of the company with banks, partners and other creditors. In case of not being able to face all the debts, a suspension of payments must be declared and a different process must be started.

Assets : before informing the partners, the assets remaining in the company must be disposed of.

Partners and creditors : it is essential to report the status of the liquidation process so that they can follow its evolution and ensure that everything is being done under the law.

Final balance : prepare a final balance and agree with the partners on a division of the remnants of the company, if any.

To be effective, it is mandatory to present the annual accounts after settlement and be up to date with the payment of taxes, both for companies and for the transfer of assets and documented legal acts (1%).

3-Extinguish the Limited Company

It is the last step and the one that completes the liquidation. The public deed of extinction of the company must be registered in the registry , including the following information:

  • Final settlement balance
  • List that identifies all partners
  • Value of membership fees
  • The final general meeting where the liquidation and distribution were approved
  • The deadline to challenge the settlement agreement
  • Proof of payment from creditors or payment deposit.
  • Proof that the partners have received their settlement or payment deposit.

Once all the procedures have been completed, a copy is sent to the Treasury and you will no longer be able to prepare documents or carry out any activity.

6 months later, the company tax return must be presented for the last time and the dissolution process of your company will be completed.

Can the limited partnership be recovered later?

No, once this process is finished there is no turning back. What can be done is not to liquidate the company and declare it inactive.

This means that for a time you do not have to pay anything and if in the future you decide to return to work with the company, you can activate and restart your activities.

Can I close a company with debts?

When a company begins to accumulate defaults it is very common for the owner to consider whether it is possible to close a company with debts .

Non-payments can be, both in amounts owed to creditors, and wages without paying employees for the pressing lack of liquidity in the company.

At this point, before continuing to generate a larger deficit, if no other solution is found, the best option is to close the business.

To do this, it is not enough to cancel the company’s activity in the Treasury. As we will explain below, the most appropriate way to do this is by requesting a voluntary bankruptcy .

In this post we tell you how you should act if your company is in a critical situation, in terms of defaults, to be able to close it.

We tell you what to do if you want to close a company with debts

Before reaching the option of closing a business, you can try to save it in the way that is least burdensome to you and those who make up the company.

The ideal for this, when things get ugly, is to develop a feasibility plan in which you can analyze the liquidity, solvency, debt and working capital situation you have.

Once this is done, the next thing is to study if there is a viable solution to save the business. If so, you have to get down to business, but if the answer is no, you must also end the company as soon as possible.

It may also happen that after the analysis there is a possible solution, but after applying it over time it does not work.

The main problem that arises when closing a business with debts is that the entity, as a legal entity, must present its accounts to zero in the Commercial Registry , otherwise the company is still alive.

Company with a sign that says closed for debt?

  • The orderly liquidation

The easiest solution to close a company with debts is to carry out an orderly liquidation of it.

This means that even if the company has unpaid amounts, the person responsible for it proceeds with its payment and, after presenting its accounts at zero, the company is dissolved.

There is no type of judicial intervention if the closing of the business is done in this way, through orderly liquidation.

Its main handicap is that the entrepreneur must have enough money to pay off the debts of the business.

A fact that in most cases does not happen, because when debts hit a business , it is not very common for it to have sufficient liquidity to pay them, otherwise it would not have them.

In any case, you can always resort to requesting a personal loan or a family loan to liquidate and close the company.

  • The voluntary bankruptcy

This is the previous step, to be able to finish a company in the most civil and correct way, when there is no other option.

To obtain the resolution of the voluntary contest, judicial intervention is necessary.

Before requesting it, it is advisable to start a creditors pre-bankruptcy . This process makes things a little easier, since it is about reaching an agreement with creditors before officially requesting the voluntary bankruptcy.

Until the agreement is reached, a complicated negotiation is carried out, but if it is done well, it is even possible to achieve a reduction of part of the debt and, of course, avoid the expenses involved in the judicial phase.

Although it is always advisable to have the advice of an attorney, whether you are already in the judicial phase (request for voluntary bankruptcy), or if you are in the preliminary phase (creditors pre-bankruptcy).

If the attempt to settle it with a creditor’s pre-bankruptcy does not work, then it is already necessary to consider the voluntary bankruptcy in order to liquidate a company with debts.

The process is much slower, if only for the simple fact that it requires court intervention.

Despite this, it is the way required by law to liquidate a company with debts , so it is inevitable.

This legal figure is precisely created to save the company from its insolvency situation.

Once the voluntary bankruptcy has been resolved , the company can be saved or not. Although the most common is that it ends with the closure of it.

  • Bankruptcy

The bankruptcy procedure must be presented before the Commercial Courts, and consists of 5 main phases.

Previous acts

It ranges from the application for the contest to the judge, which in this case is raised by the debtor for being a volunteer, to the order for admission to the process.

Common phase

It begins with the order for admission to the bankruptcy process. In this period the declaration of the contest takes place through the necessary documentation. The appointment of the bankruptcy administrator also proceeds here , who will henceforth deal with: the determination of the active and passive assets, and the classification of existing claims, .

With all the above information, the bankruptcy administrator prepares the so-called bankruptcy report .

Agreement phase

During this phase it is a question of getting a reduction in the debts that the company has. If the cancellation is finally obtained, it cannot be more than 50% of the debt and no more than 5 years can elapse during the negotiation.

Settlement phase

If the agreement phase does not give results and they are not obtained or removed or expected, the next step is the liquidation phase of the company.

Qualification

It is the final resolution of the contest.

So, if your business is in a critical situation you should consider the possibility of closing the company for debt, and for this you must choose the solution that suits you best.

Throughout this post we have developed the 2 most successful possibilities. You must first assess your situation to be able to choose.

What is not recommended is to close the company without paying attention to debts.

You should know that these last, they do not die with the company, and if they are not liquidated later the creditors can go against the businessman so that he responds with his personal assets.

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