Non-judicial liquidation of a legal entity

Jan, 11 2024


The procedure for the termination of the company is regulated by law at each stage. Not only the owners of the company can dissolve a company: this process can also be initiated through a judicial proceeding. However, for any company, non-judicial liquidation of a legal entity is the best outcome, since it does not involve additional risks for the reputation and finances of an enterprise.

The main goal of the procedure is to exclude the company from the state register. Only after that it officially ceases to exist and has no right to conclude and sign contracts, pay taxes and carry out any other operations.

The law provides for several forms of non-judicial liquidation of a legal entity:

• voluntary;

• through bankruptcy;

• administrative.

Voluntary liquidation

This way of non-judicial liquidation of a legal entity applies when a company is able to pay its debts. Usually voluntary termination of an enterprise is a complex and time-consuming process. According to the law, it may take a year with the right to extend the term for another six months. If even during this time it is not possible to comply with all the formalities, the whole process is starting over again: making of an official decision, appointing a liquidator, notifying creditors and drawing up a balance sheet.

The initiators of the voluntary termination of the company are its members or an authorized executive body. The procedure takes place in several stages:

1) Members of the company makes decision on liquidation because the company has achieved its goal or has lost its usefulness.

2) Members appoint one person or group that will deal with the company’s termination. Typically, such group includes management, accountant, lawyer.

3) Members apply to state bodies with a statement that they enter the relevant information into the register: it should indicate that the company has begun the termination procedure.

4) The official press publishes a notice of the beginning of the procedure and personally informs each creditor so that they could file a claim. This stage cannot be missed, it is strictly stipulated in the law “On state registration of legal entities and individual entrepreneurs”. Creditors then have 2 months to demand that the company fulfills its obligations.

5) Based on the statements of creditors, an interim liquidation balance sheet is formed, then it is used as the main document for paying off debts.

6) Company pays debts and prepare the final liquidation balance sheet, which indicates the remaining property of the company. Also, the company closes its bank accounts. Since the tax authorities have the right to arrange an audit, lawyers recommend closing the accounts no earlier than you make sure that the inspectors have no complaints about the company.

7) The liquidators pay the state fee and submit documents to the Federal Tax Service, having previously notified the Pension Fund of the termination. If there is no reason to reject the application, public officers enter information into the register, and from that moment the company is considered officially closed.

Bankruptcy Procedure

Also, another non-judicial way to liquidate a company is to recognize its insolvency: incapable of paying loans, salaries to employees, dismissal wage. The grounds for the non-judicial liquidation of a legal entity due to bankruptcy and the procedure are described in the Law “On Insolvency (Bankruptcy)”. This is the main legislative act leading the legal practice when the company cannot fulfill its obligations.

This type of procedure is aimed at repaying debts to creditors and helping the company so that it can continue to work and restore business activities. However, bankruptcy procedure is used only in extreme cases, since it damages the reputation of the company, and in the future its participants may have difficulty resuming business activity. The whole process can be divided into several compulsory procedures:

• observation

• financial recovery,

• external management,

• bankruptcy proceedings,

• amicable settlement.

Administrative liquidation

Non-judicial liquidation of a legal entity of this type is based on a decision of the tax inspectorate. It applies in a situation when enterprise actually does not work, but there is no information on the termination in the unified state register. In case if the procedure of voluntary company’s termination or bankruptcy has already begun, this measure is not necessary.

The company may be excluded from the unified state register in non-judicial way upon actual termination of work. In particular, if organization does not provide financial statements, and also does not perform operations on at least one of the open bank accounts within twelve months. Then the tax authority may initiate liquidation. However, in order to save reputation, it is better for the owners to initiate liquidation voluntarily, before the public authorities intervenes.

If the administrative procedure begins, a note is placed in the journal “State Registration Bulletin” within three days. The publication contains information on the recommended actions of the company’s creditors and other persons whose interests are affected by the exclusion of the company from the register. Further actions resemble the order of voluntary termination, but with some specifics.

VALEN will help with the liquidation of legal entity effectively and in a short time. We offer comprehensive support for companies planning to stop their activities, we also help with paperwork and documents submission to official authorities. Contact us and we will advise in detail on any issues arising in the process of liquidation. You can contact us through the website or by phone numbers indicated on the top of this page.

Author of the article
Non-judicial liquidation of a legal entity
Valentina Khlavich
Managing Partner
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