Compulsory liquidation of a legal entity by tax authority

Feb, 25 2020

Contents:

There are many reasons for liquidating a commercial organization including decision of tax authority. Also, it can be referred to the voluntary liquidation of the company by decision of its members or management. The decision to terminate a business can be made because it has achieved its goal or the deadline for which it was founded has passed.

However, in addition to voluntary suspension of activity, there is also a compulsory liquidation of a legal entity by a decision of tax authority or local government. In fact, such a procedure requires a court decision, which is preceded by a lawsuit by one of the public services.

The reasons for the compulsory liquidation of legal entities by the tax authority are indicated in art. 61 of the Civil Code of the Russian Federation. This is the main law governing the termination of business.

Thus, a court decision can be made on the basis of a request of tax body or local government. The law provides for the following reasons for the termination of the LLC:

  • violation of law upon registration of the organization, if the violation cannot be eliminated;
  • the organization carries out its activities without a license or permission to work;
  • business conducts prohibited activities or has repeatedly broken the law.

Recently, the most common reason for the liquidation of a legal entity by the tax authority is an unreliable address specified during registration. To solve this problem, the company is required to provide the tax authority with information about the current address, and if this does not happen, the authorities may demand the liquidation of business for breaking the law.

State authorities have the right to initiate verification of the LLC location at the address indicated in the Unified State Register of Legal Entities (USRLE). If the accuracy of the information is not confirmed, a request is sent to the business requesting to provide correct information about its location.

LLC must provide information about a reliable address within 30 days. If after one month the violation has not been eliminated, information on the inaccuracy of the data on the location of the organization is entered into USRLE. Further, the authorities apply to the court with a statement of claim on the compulsory liquidation of the legal entity by decision of the tax authority.

Moreover, in accordance with the judicial practice, in case if the court makes the appropriate decision, the costs of termination of LLC are borne by its members. In situations where the court obliges the members to officially terminate the existence of business and they do not fulfill this requirement within the scheduled time, a liquidator shall be appointed.

Another common reason for the liquidation of a legal entity by a tax authority may be a discrepancy between the net assets of the LLC and the minimum authorized capital. So, if the amount of capital of a company for two or more years is more than net assets, and the organization does not decide on the voluntary termination of activity, the authorities have the right to file a lawsuit.

At the same time, judicial practice does not consider such violations as an unconditional reason for the liquidation of a legal entity by a tax authority. The members can take measures on LLC recovery, remedy the situation and then state authorities will not have any complaints to the LLC.

  • The registration authority enters into the register information on the termination of the company.
  • The authorities appoint a liquidation commission, which may include members and business owners. After that, the commission transfers the right to manage all the affairs of the organization.
  • Information about the procedure is published in an official print publication with the name of the company, the date of the decision on liquidation, TIN.
  • Labor relations with employees are terminated.
  • An enterprise is isolated from other organizations.
  • Draw up and approve the final balance.
  • A list of documents confirming the legal procedure for conducting a compulsory termination of a business and a receipt for payment of a state fee are submitted to the authorized structure.

Russian law imposes responsibility on members for the failure to enforce court decision. So, when owners try to evade the execution of a court decision, appointed liquidators help to bring it into effect.

In such legal forms of legal entities as LLC and joint-stock company, the members are not liable for the obligations of the organization. Therefore, in case of insufficient property to repay debts to creditors or the budget, they only lose the value of the contributions made to the authorized capital of the organization but are not liable for their debts with personal property. There are less risks than in situations when personal finances and property of business members are seized to pay off debts.

Liquidation of a legal entity at the initiative of the tax authority is possible if the organization does not carry out commercial activities for a long time. The termination of the company’s operation also occurs in the case of illegal business. 

Mandatory authorization of an enterprise may be canceled in the state list of legal entities. For tax control authorities, this is more of a power than an obligation. 

The liquidation of a legal entity by the tax authority is carried out in the following situations. 

  • During the last year (before the final decision was made), the organization did not provide accounting documentation. 
  • No transactions were carried out on the company’s financial account during the calendar year.
  • The company does not have enough material resources for the costs required for voluntary closure. 
  • The founders do not have the opportunity to repay the costs in the process of arbitrary termination of the company’s activities. 
  • The state list of legal entities contains false information about the company. 
  • Commercial activity continues despite repeated disregard of legal norms (for example, there is no license, the rights of employees are violated). 

Liquidation of an inactive company by a decision of the tax authority

If the commercial activity in the institution is not fixed for a period of more than 12 calendar months, the liquidation of the legal entity is carried out by the decision of the tax authority. But if there is a debt obligation, refusal to repay it will entail subsidiary liability. 

Moreover, the persons who created the organization, as well as its direct managers, may be subject to sanctions measures. For at least 3 years, they will not have the right to found a new company or take a managerial position in another. 

The conclusion about the absence of commercial activity at the enterprise is made when analyzing the accounting documentation. Thus, if the functioning of the company is not carried out, the necessary documents are not provided and the use of the bank account is not recorded during the calendar year, the IFNS has grounds for closing it. 

The Tax Service submits a request to a banking institution, after which a thorough analysis of the information received is carried out. The most “quiet” organizations are included in a special list and are subject to inspections. 

After what period of time the tax supervisory authority liquidates the LLC

The time of the forced closure of the company depends entirely on the grounds of this decision, the existence of material debts, the legality of doing business. The final termination of the functioning of the institution implies the following actions: 

  • A legal entity is excluded from the State Register. 
  • Within 3 days, information about the planned liquidation of the LLC is published in the specialized media “Bulletin of State Registration”. 
  • Within at least 3 months, other individuals and legal entities may demand repayment of debt obligations. If the counterparties have no claims, the specified organization will be removed from the unified state register. 

Completion of the company’s activities in the IFNS No. 46

The termination of the company’s activities is a procedure that has a legitimate justification. If doing business is not possible, there is no need to expect the appointment of penalty payments and sanctions measures. 

The term of liquidation of LLC by the tax authority

The process is characterized by duration and complexity, depending on the circumstances. It depends on the period required to make a decision on the closure of the company, as well as on the inspection by members of the tax service. 

This includes the duration of court proceedings, informing borrowers, preparing the balance sheet, providing other necessary documentation, and bidding. 

Compulsory liquidation of a legal entity by a tax authority is possible after filing a claim with the Court. After the decision made by the Court, the founders of the enterprise are obliged to urgently terminate its activities.

VALEN company will help your company to avoid claims from state authorities and prevent serious consequences of the liquidation of a legal entity by tax decision, if it has already been passed. We will make sure that the necessary and correct information is entered into Unified State Register of Legal Entities and also help you to handle tax inspections.

You can contact our lawyers by any of the available methods of communication. We also invite you to the VALEN office by making an appointment in advance: +7 (495) 7-888-096!

F.A.Q.

Can the tax service initiate the liquidation process due to an incorrect address of the company?

At the initiative of the tax authority, a verification of the authenticity of the company’s address can be carried out, and in case of an error, a request is sent indicating the correct address. If the data is not correct for more than 6 months, the tax service has the right to exclude an entry about a legal entity from the register.

Who manages all the affairs of a legal entity after the tax authority has decided to terminate its activities?

After the decision on liquidation is made, a liquidation commission is formed, which manages the affairs of the legal entity and represents its interests in court.

If a legal entity is in liquidation, what payments are due to employees?

If the liquidation process begins, all employees are dismissed and receive a salary for the days worked and for unused vacation, compensation in the amount of 1 month’s salary.

What documents does a representative of a legal entity receive from the tax authority?

The tax (registering) body enters information on the establishment of a liquidation commission in the Unified State Register of Legal Entities, a certificate and an extract from the register are issued to the representative of the LLC.

Who makes a decision on the compulsory liquidation of a legal entity?

At the request of the tax authority, a decision on the compulsory liquidation of a business entity may be made in court.

Author of the article
Compulsory liquidation of a legal entity by tax authority
Valentina Khlavich
Managing Partner
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