Liquidation of legal entity in 2020

Apr, 02 2020


A commercial company is considered as operational one until a record of the termination of its existence appears in the state register. But for the authorities to make changes to the registry, you need to go through a multi-stage procedure, which requires strict compliance with the law. The slightest violations can lead to a refusal in registration of the liquidation procedure. The liquidation of a legal entity in 2020 has its own peculiarities dictated by legislative amendments.

The court’s ruling or company’s members’ decision on work termination can become a reason for company liquidation. Federal Tax Service or one of enterprise’s members can file a claim against a company. Perhaps the most reasons for company’s liquidation are fulfillment of goals for which it was created or expiration of activity’s term.

The main ways of company’s liquidation in 2020

Legislation provides for two forms of commercial company’s liquidation: voluntary and compulsory. Voluntary liquidation requires a decision of company’s members. Inexpediency of further activity of the company, fulfillment of goals for which it was created, or expiration of activity’s term are among the grounds for company’s closure.

Compulsory form of liquidation occurs only on court decision. Company may be forcibly liquidated if it engages activities prohibited by law or does not have a license. Among possible reasons for judicial claims are irreparable violations admitted in process of company’s registering. Relevant claims may be filed by state authorities.

One of company’s members can also become an initiator of compulsory liquidation of legal entity, but only in case if a company is not able to operate properly because of a prolonged internal conflict. Obligatory condition for the commencement of trial and business abolition via Court is an impossibility of members to agree on decisions or evade business management

New amendments to legislation as well as updating of legislative framework that need to be addressed while company’s closure appears over time. It is important to adhere strictly to the procedure established by law in the process of company’s closure. You can seek help of qualified lawyers to avoid mistakes in liquidation procedure.

  1. Decision on termination of business and appointment of liquidator 

The first step to liquidation is a decision on the consent of company’s termination making by general meeting of members. Liquidator or liquidation commission who will carry out the procedure are appointed at the result of general meeting. This decision should contain the procedure and terms of the procedure, as well as approve the commission members. Usually they are company’s general manager accountant and lawyer, but it is also possible to hire external specialists.

  1. Notification of state authorities

The next step is to prepare notifications: to notify about the start of liquidation procedure through the official press and contact the authorities. The procedure has its own features depending on the form of management you need to fill out a special form and submit it to Federal Tax Service anyway. The form is certified by a notary and should contain the following information:

  • date of decision on liquidation
  • information about the head of the commission or the liquidator

Such a form is filed to Federal Tax Service. Given the innovations, a necessity to inform the Pension Fund, as well as the Social Insurance Fund, about the termination of work independently is no longer exist. Representatives of the tax authorities will contact them and provide all the required information.

Together with the notification, the liquidator submits the minutes of member’s meeting or the decision of the sole company’s member, depending on the number of participants. Tax office enters a record in the register that the legal entity is in the process of liquidation in five business days after the submitting.

When the applicant is given a written confirmation that his request has been included in the State Register, he is obliged to publish an official message in in the State Registration Bulletin in order to notify all interested parties about the shutdown of the company.

  1. Notification of creditors

Creditors should be notified on a company liquidation in written form. As creditors are interested persons the are able to perform claims and the law requires to inform them on company-debtor’s liquidation in time.  The terms and form of claim’s submission should be contained in notification. This period must be no less than 60 days. 

  1. Notification of employees

Liquidation of legal entity in 2020 also provides for such stage as notification of company’s employees. They must be notified of its closure no later than 2 months before the end of the process. The notification is made out in writing with a note that the dismissal is an initiative of the employer.

Employees should receive severance pay in the amount of the average monthly salary. In addition, they are entitled to receive salary for the period of their employment, but it cannot be longer than two months from the date of official dismissal.

  1. Preparing of interim liquidation balance sheet

The next stage is preparation of an interim liquidation balance sheet. This document is prepared after all creditors have submitted their claims, but not earlier than the end of the period when the authorities are able to carry out an extraordinary audit. The law does not strictly describe the way this document is drawn up but stipulates the information that it should contain. Experienced lawyers advised to adhere the analogies with financial statements.

Interim balance sheet should contain information on the property of the organization, information on the creditors’ claims and the results of their consideration. When the balance sheet is drawn up, it should be approved at a meeting of participants. Protocol or decision on the result of a meeting should also be draw up. Finally, a notarized notification containing information on the preparation of the interim balance sheet is submitted to the tax authorities.

  1. Repayment of claims

After submitting of interim liquidation balance sheet, company may start repayment of creditors’ claim. Repayment with creditors should be provided in accordance with priority established by law. It requires that the first to receive funds are the persons to whom the company is liable in respect of the moral damage or harm damage. 

Then in is necessary to settle up with employees according to employment contracts, pay salaries, allowances, remuneration. Then the turn of mandatory payments and funds, including insurance premiums, fines and taxes comes. The last payments are received by those creditors who are not included in any of the listed categories.

If the company does not have enough funds to satisfy all the requirements of creditors, further liquidation can be carried out only via bankruptcy procedure. Company is obliged to put up its property for public auction and pay creditors with funds received from its sale. Please note that LLC participants do not risk with personal property.

  1. Preparation of a liquidation balance sheet and assets distribution

The next step – is drawing up a liquidation balance sheet that should lists the remaining company funds and property that is distributed among the members. Liquidation balance should be submitted by member’s general meeting and drafted in a form of a protocol or a decision. Then the rest property and funds can be distributed among founders according to their interest in the authorized capital.

  1. Submitting the final set of documents to tax authority

Liquidation of legal entity in 2020 ends by submitting the following list of documents to tax authority:

  • notary certified application form; 
  • liquidation balance sheet;
  • protocol on submitting of liquidation balance sheet;
  • receipt on payment of state duty

VALEN will help with liquidation of legal entity effectively and in a short time. We offer comprehensive support to companies planning to stop their activity, help with preparing of necessary documents and their submission to official authorities. Please contact us and we will advise in detail on any issues arising during the liquidation process. You can contact us via web-site site or by phone numbers indicated at the top of the page.

Author of the article
Liquidation of legal entity in 2020
Valentina Khlavich
Managing Partner
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