Voluntary liquidation procedure of legal entity

Jan, 22 2024


Russian legislation provides a special procedure for the final termination of commercial activity, without transfer of rights and obligations. Each stage of legal entity’s termination is regulated by law. In case of law violation, the procedure may be delayed for a long time or come to a standstill, which is disadvantageous for company’s owner and threatens with large fines.

Voluntary liquidation of legal entity is a procedure initiated by members of an enterprise. There may be several reasons for such decision: from the inexpediency of further activities to achieving company’s goals.

The first and main consequence entailing the voluntary liquidation of a legal entity is the entering a notice on company’s termination in the Unified Register of Legal Entities., The enterprise no longer exists for official authorities, cannot pay taxes, sign contracts, buy, sell or perform any other actions as soon as this action happens. But sometimes its rights and obligations may be transferred to other legal entities.

The second consequence of the company’s liquidation is the termination of employment contracts with all employees. However, the law requires the employer to inform each employee about the upcoming dismissal in two months term. Employees are entitled to dismissal wage and its size is calculated on the base of employee’s average monthly earnings. Also, the employer pays the average monthly salary during their employment, but this period cannot last longer than two months from the dismissal day. In other words, the employer should do his best so that employees can easily find a new place of employment.

Upon voluntary liquidation of a legal entity, not only enterprise’s employees, but also creditors are to be notified about company’s termination. For this purpose, liquidator (liquidation commission) should prepare and send to each creditor letter of notification, which must indicate the time period for submitting their claims. This period cannot be less than two months.

Nevertheless, it is beneficial for the company to act in the mentioned way in order to avoid a compulsory liquidation or bankruptcy. So, business reputation is safe, company won’t have to risk its property or pay heavy fines in case if all procedures are carried out legally.

Stages of company’s liquidation 

Voluntary liquidation of company is a process that cannot exceed one year. If liquidation is not completed within a year, this period may be extended by court, but not more than for six months. If company’s liquidation does not complete within the above period, it will be necessary to re-take decision on liquidation and carry out entire procedure from the beginning. You can seek help of qualified lawyers to avoid slowing down the process – this will save your time and money.

Appointment of liquidator or liquidation commission

The first step of voluntary liquidation of legal entity is an official decision of its members on the consent of company’s termination. The second step is a determination of a person or an executive group who will carry out the procedure and be responsible for it. This group will gain authority for legal entity’s management. The liquidation commission usually includes general manager of the company and its several employees, for example, accountant, lawyer, etc.

Notification of state authorities

The next compulsory step of company’s work termination is a notification of state authorities. It is necessary to notify tax authorities at the company’s location within three business days. Based on this document and the decision on liquidation, the information that legal entity is in the process of liquidation will be entered into USRLE within five working days.

Publication of information on liquidation

After notification of tax authorities, it is necessary to publish a notice about voluntary liquidation of legal entity (LLC for example) in the State Registration Bulletin, where timeframe and procedure for creditors to initiate claims are indicated.

Tax audit

During liquidation, territorial tax authorities may schedule an on-site tax audit. In this case, time of previous audit is not taken into account. At the same time, period not exceeding three years before date of decision to conduct the audit is checked. During this audit tax inspectors cannot pull up the papers from five or ten years ago without special reasons. 

Interim liquidation balance sheet

After government authorities are notified and the notice in State Registration Bulletin is made, the next step of the procedure is coming – preparation of interim liquidation balance sheet. It should be drafted in term non less than two months after the publication in the State Registration Bulletin and must contain information about composition of company’s property, list of claims submitted by creditors, as well as results of their consideration. This procedure is provided after the company publishes information about liquidation, notifies creditors about it and they declare their requests.

After preparing interim liquidation balance sheet, liquidator of liquidation commission should notify the registration authority. At this stage, liquidation reports are submitted to extrabudgetary funds and tax reports are submitted ahead of schedule.

Repayment of creditors’ claims 

The next step of the procedure is repayment of creditors’ claims and fulfillment of commitments. 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. If the company does not have enough property to satisfy all the requirements of creditors, further liquidation can be carried out only via bankruptcy procedure. But this is an extremely undesirable way that should be avoided.

Liquidation balance sheet and distribution of company assets

After satisfying the creditors’ claims, a liquidation balance sheet must be drawn up that lists the remaining company property. What does the law prescribe to do with it? You may distribute the property among the members by drafting a special act, signing by all company members after approval of the liquidation balance sheet.

Closing bank accounts

Voluntary liquidation of a legal entity also implies a step of bank accounts’ closing. It may be performed earlier or later: before or after submitting of liquidation balance. However, specialists do not recommend to close bank accounts until it has been reconciled with the tax authorities and all reports have been submitted.

State registration of liquidation and removal from the register

Final stage of the procedure is submitting documents for registration of company’s liquidation, as well as its removal from the register. To do this the required documents must be submitted to the tax office. Within 5 business days after submission of documents, entry into the Unified State Register of Legal Entities and notification of removal from the register can be obtained. As soon as corresponding entry appears in the USRLE, the procedure can be considered completed.

For state registration of company’s liquidation, the following documents are needed:

• application form;

• liquidation balance sheet, approved by all members;

• receipt on payment of state duty (in case if documents are not filed in electronic form).

If there are no grounds for refusal of registration, tax office will enter the USRLE information that company has ceased its activity. This date is considered as official date of company’s liquidation, after which it is possible to obtain relevant papers confirming this fact. State authorities are entitled to refuse in registration for several reasons. For example, if company has unpaid debts, time deadlines for submitting creditors’ claims are failed. Any violations of the procedure may become a reason for refusal, that is why we recommend not relying on your own experience and perform company’s termination with the support of qualified lawyers.

Purpose of company’s liquidation 

The main purpose of voluntary liquidation of legal entity is to exclude company from the Unified State Register of Legal Entities. After that, the company officially ceases to exist and cannot conduct any activity.

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 to prepare all necessary documents and organize 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 website or by phone numbers indicated at the top of the page.

Author of the article
Voluntary liquidation procedure of legal entity
Valentina Khlavich
Managing Partner
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