Liquidation of inactive legal entity
Liquidation of inactive legal entity by the tax authority is a multi-stage procedure, which takes place in strict compliance with legal requirements. Commercial organization is not considered dissolved even if it has ceased to conduct its business activity until the relevant entry in the registry about it has been made.
Commercial firms and companies may cease to conduct business activity for various reasons. Owners of business or government representatives have the right to initiate the procedure, but a court decision is required. It is more profitable for entrepreneurs to stop work voluntarily, i.e. on their own initiative: business reputation suffers less, risks of fines are reduced. However, sometimes companies are liquidated in court – at the request of state authorities.
Below we will talk about such cases when a company is liquidated by the tax inspection because the business has not been operating for a long time. Liquidation of inactive legal entity by the tax authority means exclusion of the company from the Unified state register of legal entities.
Exclusion from the register does not entail the transfer of rights and obligations to its successors. Despite the prevalence of such procedure, many companies do not have the idea of the parameters by which they can be declared inactive, and consequences of such decision of the registering authority.
Liquidation of inactive legal entity: grounds, reasons, initiators
In order to liquidate inactive company, the tax authorities must first make sure that the business has ceased to conduct operations. It must meet the criteria set forth in Art. 64.2 of the Civil Code. An organization is considered to be inactive if it is not actually operating:
- does not regularly submit financial statements that are required by the Russian legislation on taxes and fees;
- does not conduct financial transactions on at least one of the open bank accounts.
To learn more about possibility of a liquidation of inactive legal entity by a tax authority it is necessary to get acquainted with legal framework: a company can only be declared inactive if it did not submit tax returns and did not conduct any financial transactions through its own accounts during the last calendar year preceding the authorities’ decision to remove the registry entry. Otherwise, the authorities have no right to initiate the removal of the business from the register on the grounds that it has ceased to operate.
Also, organisations are to be excluded from the Unified State Register of Legal Entities if they do not have sufficient financial security to conduct independent liquidation of inactive legal entity. The state register should contain an entry about them for more than six months, indicating that the nonreliability of information concerning the company.
Liquidation procedure of inactive legal entity by the tax authority
State authorities can exclude a company from the Unified State Register of Legal Entities through non judicial procedure if it has actually ceased to operate. At the same time, there are some circumstances when the decision on liquidation of the inactive legal entity cannot be made by the tax authority:
- in case of bankruptcy of the company,
- in procedures of monitoring, financial recovery, external management and bankruptcy proceedings.
When the tax inspection decides on the imminent removal of a legal entity from the register, an announcement and information for interested persons and enterprises whose interests are affected by the removal of the organization from the register are placed in the official press. It takes up to three days.
It is important to mention that as soon as the counterparty has sent the information to the media, the authorities have no right to exclude the business from the Unified State Register of Legal Entities within three months. This is due to the fact that the law gives creditors and other interested persons the opportunity to express their claims and interests. Once the business officially ceases to exist, they will not be able to collect their debts. Liquidation of inactive legal entity can be carried out in the regular order, provided by Art. 61 of the Civil Code.
If within three months the tax inspection has not received an application, an entry about exclusion of inactive legal entity is made in the register based on the decision of the registering authority. After the entry appears, the existence of the business is officially considered to be finished, and no one can have any material claims against inactive organization.
Judicial procedure for the liquidation of inactive legal entity
There are two ways for authorities to resolve issues related to the “frozen” business. The first of them we described above, it is the administrative procedure for the liquidation of the company, which stopped conducting business long ago. The second way to exclude the business from the register is more complicated: through judicial procedure.
A company is a public association, and according to the law it can be excluded from the Unified State Register of Legal Entities based on a suit filed by the registering body. Such measures are taken when business repeatedly fails to provide required information about its activities.
In other words, state representatives can initiate legal proceedings due to the fact that business violates the laws and conceals information. Such cases are examined by district courts, based on the rules of administrative proceedings.
Liquidation procedure of inactive legal entity – debtor
It is necessary to note that the process of removing a legal entity from the Unified State Register of Legal Entities is not a liquidation procedure. It does not provide for actions with the property of the enterprise, including those aimed at meeting the creditors’ claims. If inactive company has property and unpaid debts to its partners, the procedure of bankruptcy of the absent debtor is applied. This is a completely different process, which requires different approaches and legal framework.
An obligatory condition is the presence of absence criteria:
- Failure to carry out business activities;
- Absence of a company director and inability to determine his location.
The bankruptcy judicial procedure for the absent debtor is initiated by the tax office. Russian laws allow to consider the case in one month. It is taken into account that in case of the absence of the debtor it is impossible to apply to business procedures of monitoring, financial recovery and external management. On the other hand, the tax authority provides for a simplified procedure of liquidation of inactive legal entity. These issues are the responsibility of the arbitration court: it is it that decides whether to apply the simplified algorithm of actions.
For liquidation of inactive legal entity, a bankruptcy manager is appointed, whose duties include the publication of information about the bankruptcy of the company, as well as written notification of creditors of the procedure of bankruptcy, so that they could submit claims.
If the property of the absent debtor is enough for settlements with creditors, the bankruptcy manager has an opportunity to submit a petition for transition to the general bankruptcy procedure. However, practice shows that this condition is rarely met, so it is likely that a simplified procedure will have to be followed.
Challenging the decision of the tax authority to liquidate inactive legal entity
In case of disagreement with the actions of the tax authority, the company, its creditors and other persons have the right to challenge the decision. Form P38001 is established for filing objections with the Federal Tax Service. An application shall be submitted to the registration authority which made the decision within 3 months from the date of its publication. Upon receipt of respective application, the enterprise cannot be excluded from the unified state register of legal entities. For creditors and other persons whose rights have been affected by the exclusion of a legal entity from the register, the term is extended to one year from the date when creditors or other persons learned or should have learned about the violation of their rights.
Russian legislation provides for possibility of submitting objections in various forms:
- Post mail;
- Electronic document with electronic signature;
- Personal filing of an application with the tax authority;
- Direction of objections through a notary.
VALEN will help to avoid adverse consequences of liquidation of inactive legal entity, to submit an objection to the decision of the tax authority, to exclude the company from the Unified State Register of Legal Entities and to send applications to counterparties properly. We closely cooperate not only with Russian enterprises, but also with foreign businesses that have partners and representative offices in Russia.
To consult with our lawyers on the liquidation of inactive legal entity or to order our services, please leave your application on the website or call us: +7 (495) 7-888-096! We are also waiting for you in VALEN office in Moscow by appointment.