Liquidation of business

Jan, 16 2020

Contents:

The final life stage of any business is liquidation when further work of a legal entity is impossible. Should it be necessary to liquidate the company, one has to go through the standard procedure provided by law. It is very important to carry out the whole procedure in strict compliance with the rules and to take into account the interests of all parties so that the procedure does not drag out and end in court claims and fines.

According to the Russian legislation, there are two ways to liquidate a company:

  1. directors decide to liquidate it – voluntarily;
  2. a court makes the decision – compulsory.

In the first case, the initiative to complete the work of a company comes from its management and is a voluntary decision. It is possible when the further work of a company for some reason has become impractical, or the goal for which this business was created has been achieved, or something else like that.

In the second case, the liquidation process starts with a court decision (only upon completion of the legal process). This can happen, for example, if a company conducts its work with significant and systemic violations and carries out activities prohibited by the legislation of the country, or the business operates without the stipulated licenses. The local state service will be the plaintiff in this process (the one that regulates the business sphere).

What do we get at the end of liquidation?

As long as a company is included in the State Register, and has a unique registration number, it is considered as operating, so the liquidation process always ends with the only result – a legal entity is excluded from this register. After that, a company does not act anyhow. Sometimes the obligations of a liquidated company are transferred to another firm.

When the liquidation process is completed, a firm terminates all of its contracts, including those signed with employees, suppliers, and other partners. All the employees must receive notification about the company’s liquidation no later than 2 months before the liquidation date, and at that time, each employee receives severance payment. 

Besides, all the creditors (if any) must be notified on the beginning of the liquidation process. It is up to the special liquidation commission to notify all the creditors. Thus, the commission sends special messages to all creditors’ addresses. These notifications set the deadline for filing claims from creditors.

Liquidation process step by step

In any case, the entire procedure must be carried out within 1 year (no more), and in exceptional cases, the process can be extended for another six months (by court order). And in case the liquidation cannot be carried out within the above period, the process must start from the very beginning again.

1. Making a decision

So, a board of directors starts the liquidation procedure (if this is a voluntary liquidation). After that, they appoint a responsible person, or a group of responsible persons (liquidator, or a liquidation commission). A liquidator, or members of a liquidation commission, carry out all the actions according to the procedure and are responsible for that. Typically, in practice, these commissions include a director (CEO), accounting employees, lawyers, etc.

2. Notification of government services

Next, one must notify the local tax office within 3 days from the date of the directors’ decision. The law provides for a special form for this – P15001. You can download it from the website, fill it in and send it to the tax office. After the tax service receives the notification, within 5 working days, information is added to the State Register confirming that the company is in the liquidation process.

Tax audit. At the same time, the Russian tax authority can appoint an unscheduled audit in the liquidated company. Under this procedure, they will check operations conducted by a company for up to 3 years before the start of a liquidation process.

3. Publication of information on liquidation

After that, a commission publishes notification of company liquidation, indicating the timing and sequence of filing claims for creditors.

4. Interim balance of liquidation

After that, a commission draws up an interim liquidation balance. This document contains information about the property owned by a company, as well as claims from creditors, and answers for each of them. This step is carried out after the publication of the announcement of liquidation, and the notification of the tax office and creditors about this, and the creditors make their claims.

After this stage, the responsible liquidators notify the state registration authority. At the same time, reports are transferred to extra-budget funds and reports to the tax office.

5. Working with creditors

So, the next step in the procedure is processing creditors’ claims. This stage is clearly described in the Russian legislation. The firm sells its property and returns its debts from the funds received, and if the funds from the sales of property are not enough, bankruptcy proceedings are started.

6. Distribution of assets on the balance sheet

When all the funds are reimbursed to creditors and there is still a balance left, then this money is allocated among the owners. A liquidation balance sheet is drawn up for this. Each owner receives an act indicating the funds given to this person. The document is signed by all members of the commission.

7. Closing a bank account

As the firm ceases its commercial activities, it no longer needs bank accounts and they are to be closed. Following the legislation, a bank account can be closed even before the 6th stage, but it is not recommended to do this unless the tax office has objections.

8. Completion of the liquidation process – data is deleted from the State Register

The last point in the liquidation procedure begins when all the requirements of the tax service and creditors are satisfied, and the company no longer owes anyone any money. At this moment, the liquidation commission submits documents for the company’s deletion from the Register, the documents are submitted to the Federal tax authorities. Here is a list of those to be submitted:

  • Completed form;
  • Balance of liquidation;
  • Document confirming the payment of the state fee;
  • Other documents provided for by the Law.

All documents are submitted to the tax office, and within the standard deadline (to 5 days) you receive confirmation of removing the legal entity’s record from the State Register. This is the case if a local tax service has no more claims to the liquidated company, otherwise, it will be necessary to satisfy these claims first. The date of removing the record from the State Register is considered the date of completion of the liquidation.

This date is considered the official date of the company liquidation; after which you can receive the relevant documents confirming the fact of liquidation.

Sometimes, the state tax service may refuse to liquidate the company, for example, until all debts are eliminated, or if mistakes are made in the liquidation process.

Liquidation of a company with VALEN

There may be several possible reasons for business liquidation, but in any case, you will have to go through the procedure of voluntary or compulsory liquidation, which is described in the relevant Law. And ultimately the result is the same – the company is excluded from the official register, after that it cannot carry on further activities and is released from all possible obligations.

As for the liquidation period, it should not exceed 1 year, but in some cases this period can be extended by another 0.5 years. During this period, it is necessary to complete all the necessary procedures, and if it was not possible to do this for some reason, then it will be necessary to start the whole procedure again.

Author of the article

Liquidation of business
Kirill Chemlaev
Senior Lawyer

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