Reorganization of the company

Jan, 07 2024


There are various ways to terminate a company’s operation: through reorganization and liquidation of a legal entity. The first method involves the transformation of the business: its merger, division, separation, joining. The second method – liquidation – implies the exclusion of the company from the state register. At the same time, it does not transfer rights to another company and divides net assets between participants.

Liquidation and reorganization can take place voluntarily and forcibly. Usually the decision to terminate the business is made by the founders, but sometimes the business is officially closed by government agencies or the court. This is possible, for example, when a company does not file tax reports for a year and does not use accounts.

Reorganization and liquidation of legal entities is the termination of the existence of a business, but with one important difference: the presence or absence of succession. If liquidation means that the company has no legal successors, then reorganization, on the contrary, implies their presence.

Who exactly will assume the rights and responsibilities of managers depends on the form of reorganization. So, during the merger, a new company is registered, which acts as a successor. In the case of joining, one organization ceases to exist, but its rights and obligations are transferred to another company. Separation means that new legal entities will appear, and the legal succession will be determined by the separation acts.

Other differences of liquidation and reorganization:

  • If the liquidation is completed at the time of exclusion of the business from the registers, then the reorganization is when new companies (company) are registered.
  • In case of liquidation, the liquidation balance sheet is drawn up, in case of reorganization – a transfer act or contract.
  • Liquidation requires the dismissal of all employees, reorganization does not give management the right to dismiss, but employees can refuse a new job.

As we have already noted above, liquidation and reorganization can take place voluntarily, when the decision is made by the founders, or forcibly – in this case, the decision to close the company is made by a court or other state body.

There are five forms of reorganization:

  • Merge. On the basis of the transfer act, the rights are transferred to a new legal entity.
  • Joining. The rights are obtained by another, already existing company on the basis of the transfer act.
  • Separation. Rights and obligations are granted to new companies – on the basis of the dividing balance sheet.
  • Selection. Each legal entity separated from the composition receives rights and obligations according to the separation balance sheet.
  • Conversion. The company changes its organizational and legal form, so that the rights are transferred to the new enterprise on the basis of the transfer act.

Information about the succession of obligations is contained in the transfer act or the separation balance sheet. These documents are signed by the founders or representatives of the state body.

Since liquidation does not involve the transfer of rights and obligations of the company, there are only two types of liquidation: voluntary and compulsory. The reasons for the forced removal of an organization from the register may be various violations, including work without a license, illegal actions, lack of tax documentation.

The basis for the reorganization of the company may be the decision of the founders, the low profitability of the business, the absorption of competitors, the transition to another form of taxation, and so on. Reorganization often turns out to be only the last stage of business optimization, it can be considered as a radical way to improve financial performance.

Liquidation can also occur for the reason that the business has ceased to be profitable, the purpose of the business organization has been achieved, the founders have decided to close the company. This procedure begins with the adoption of a decision, which should be notified to the State authorities within three days. A liquidation commission is being created – it deals with all matters related to the closure of the company, including payments on obligations. Sometimes the liquidation procedure can take much longer than the registration of a business.

How to dismiss an employee when reorganizing an organization

Managers are required to inform employees about the reorganization after such a decision has been made. Reorganization does not allow employees to be dismissed, but employees have the right to decide on their own whether they want to continue working at the new enterprise or prefer to leave.

The Labor Code does not allow dismissals due to reorganization, but if an employee wants to leave himself, the employer must adhere to the order:

  • Notify all employees of the changes. It is advisable to do this in writing, asking them to sign papers that they have read the text. At the same time, the employer must indicate not only the fact of reorganization itself, but also its form, change of owners and other details. The notification clarifies the fact of the preservation of labor relations.
  • After that, you can accept applications from employees who want to quit. That is, the initiative should come from the employee, and not from the employer– who, on the contrary, is obliged to provide an opportunity to save the workplace or change it.
  • Issue an individual or collective dismissal order. It all depends on the scale of the business and how many employees leave. Until the order is issued, the employee can withdraw his application.
  • Make appropriate entries in the work book and give it to former employees.
  • Transfer the earned money – this must be done on the day of dismissal, and taking into account all compensations. An employee, however, cannot claim severance pay.

How to dismiss an employee during the liquidation of a company or a separate division

When it comes to the closure of a separate division or the abolition of a company, dismissal occurs differently. The law no longer requires an employer to offer employees another place. When a company closes a branch, it has the right to dismiss employees due to redundancy, but they should still be offered free places, if there are such places in the company now.

As in the case of reorganization, employees must be notified of the liquidation of the company or division. This must be done in writing and in advance: three months before the dismissal. Also, the employer is obliged to notify the employment center and the trade union about the dismissal. Then you can issue an order, fill out and issue employee workbooks. At the same time, it is important to properly issue all documents, including orders and notifications – competent lawyers can help with this.

VALEN has extensive practice in reorganization and liquidation processes, knows what actions must be taken to successfully complete the company’s activities. Ask for advice and legal support by phone or via the website!

Author of the article
Reorganization of the company
Valentina Khlavich
Managing Partner
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