Faced with a failed business in which no solution is in sight, the entrepreneur may be forced to resort to the dissolution of the company
The main objective of the liquidation phase will be to convert all the assets of the company into liquid
It is not surprising that, faced with a failed business in which no solution is in sight, the businessman is forced to resort to the dissolution of the company. It should be borne in mind that there are two different types of dissolutions depending on the reason for dissolution.
In accordance with the Capital Companies Law, dissolution will be by right when it is due to the expiration of the term of duration established in the bylaws, or when one year has passed since the adoption of a resolution to reduce the capital stock below the legal minimum as a legal consequence of compliance with a law, provided that there is no registration of the transformation, dissolution or increase of the capital stock in the Mercantile Registry.
There are also other causes for which the company may be dissolved by resolution of the General Meeting, such as the termination of the activity, the conclusion of the company or the manifest impossibility of achieving the corporate purpose, among others. In this sense, once it is confirmed that there are causes that justify the dissolution of the company, the corresponding vote must be taken at the General Meeting. A majority to dissolve the company will be considered to exist when the favorable vote of 1/3 of the capital stock is obtained. If this majority is not reached, the proceedings may continue, although generally in a more burdensome manner, through the courts.
Once the aforementioned resolution has been adopted, it must be recorded in the Commercial Registry, thus initiating the liquidation phase of the company. It should be remembered that, during this liquidation phase, the company will continue to maintain its legal personality, so that the expression “in liquidation” must be added to its corporate name. In this phase, unless otherwise agreed in the bylaws, the administrators will be appointed as liquidators.
The main objective of the liquidation phase will be to convert all the assets of the company into liquid, in order to be able to meet the pending payments, such as those corresponding to the administration (taxes and Social Security contributions), the debts contracted with the creditors or the distribution of assets among the partners.
Finally, when the liquidation phase has been completed, the extinction, that is to say, the definitive dissolution of the company, will be carried out. The purpose of this procedure is to record, by means of a public deed, the end of the period for challenging the Final Liquidation Balance Sheet, without any challenge having been made by the partners, as well as the fact that all the debts existing with the respective creditors have been satisfied. It must also state that the liquidation quota of the partners has been paid, or, in such case, that the amount thereof has been consigned.
It is important to mention that, as a last step, it will be necessary to go to the commercial registry in order to carry out the corresponding cancellation of the company’s registration.
Once the Limited Company has been completely dissolved, there will still be a series of tax obligations, such as the Corporate Tax, valuing the assets distributed among the partners at market price, or the Value Added Tax, which in certain cases must be applied to the assets of the company transferred to the assets of the partners.
For further information, please consult a Tax Advisor.
