What is liquidation? Step-by-step algorithm

Practice shows that to open a company is quite easy and simple, but to close the business can be quite troublesome. Difficult economic situation, sometimes irrational tax legislation, not always consistent revenue bodies administering and quite often unwillingness of business owners to conduct it transparently creates a “shadowing” of almost all spheres of business, and leads to the fact that many entrepreneurs today are considering of reorganizing or closing of a business.

The procedure of liquidation of a business entity is primarily determined by its financial condition. If a current assets ratio of a legal entity is positive or neutral and it has no debts to creditors, it can be liquidated by the founders. But if the company has no funds to pay all creditors or has debts to the budget, it shall be liquidated through bankruptcy.

A significant experience in bankruptcy of professionals of PATRIOT Law Firm allows for the conclusion that in the process of liquidation and bankruptcy arise many issues that are not directly legislated, and only practical knowledge of lawyers who have repeatedly dealt with the liquidation of enterprises, allows to avoid all the pitfalls of liquidation.

It should be noted that legal gaps are not the only problem that the owners of the companies in liquidation have to face. Each of such businessmen wants to close their company safely, quickly and with no trouble, but the system of regulatory bodies’ operation often makes it impossible to carry out the liquidation in a timely manner. Moreover, as the result of tax audit some legal violations can be detected, that can be the reason for bringing a Director/chief accountant to responsibility, up to criminal liability.

In order not to delay the already time-consuming process of dissolution, and not to complicate your life with unnecessary worries about inspections, you should contact suitably qualified lawyers who will minimize risks and carry out the liquidation quickly and efficiently.

Before starting the liquidation procedure, a thorough analysis, audit of the financial condition of the company should be conducted to develop a detailed plan of actions that will need to be taken during liquidation as well as before it. It is also necessary to consider the fact that the legislation contains only a general plan and sequence of liquidation measures, and in addition, there are many particularities connected with the specificity of company’s operations or legal form of business entity, for example, joint stock companies, insurance companies, public organizations, asset management companies. So if we are not talking about LLC that has not conducted any activities and has been existing for six months, you need to understand that each case of liquidation is unique and requires a well-developed strategy and an individual approach.

In order to have a general idea of the elimination procedure, let us consider its main aspects.
Legal consequence of the business entity liquidation is, in fact, a termination of its rights and obligations to the state and contractors without legal succession. Proof that the liquidation was successful and the business entity no longer exists is a mark in USR about the liquidation of the enterprise and its removal from a register.

The plan of “common” actions in the process of liquidation of a business entity looks like this:

1. Making a decision for the liquidation of the company by its founder. For this purpose, the general meeting of shareholders is held, where the liquidator (liquidation commission) shall be elected, that is, the one who will actually perform actions on the liquidation of the company. The decisions taken by the general meeting of shareholders are recorded in the protocol. After the liquidator (usually a former Director) is elected, he exercises all the powers and authority of the Executive body of the company.
The main tasks of the liquidator are confined to: assessment of the company’s property, the specification of debtors and creditors of the company, taking actions to settle debts of the legal entity to third parties, drafting of the provisional statement of affairs.

2. Submission of the minutes of the General meeting of founders copy to State Registrar, for a record about termination of company business to be made in USR.

3. Appealing to the tax agency, pension fund, social insurance fund with petitions about the company liquidation for these authorities to make inspections. The result of such inspections should be a certificate of tax clearance and deregistration of a legal entitiy. Appealing to the regulatory authorities, if any licences, certificates, etc. has been issued to the company.

4. Notification to creditors and debtors of the liquidation of the company, determination of periods and process of creditors’ appeal with their requirements to the company in process of liquidation.

5. The closure of bank accounts that will not be used in the liquidation process.
6. Conduct of assessment and inventory of the legal entity’s property.

7. The dismissal of employees who work for a company that is in the process of liquidation in compliance with all procedural requirements (considering prohibition of dismissal of employees on maternity leave, the notification employment centre of dismissal of employees).

8. The drafting and approval of the minutes of the General meeting of owners of interim liquidation balance, which reflects debts and cost of property of the enterprise which is being liquidated.

9. Sale of the company’s in order to accumulate funds for settlement with creditors, payment of debts to creditors that filed their claims within the prescribed period and are registered in the list of creditors in order of priority.

10. The drafting and approval of the minutes of the General meeting of owners of the liquidation balance after debt repayment.

11. The division of property or funds remaining after payments to creditors among the founders of the company, that is being liquidated.

12. Transfer of documents on legal entity to the archive.

Summing up, it should be noted that when making a decision of business liquidation you need to take into account the following aspects:
• in general, for LLC and single proprietor firm liquidation procedure takes 6-12 months and this process is quite laborious and time-consuming;
• dissolution requires additional financing, namely: the payment of state fees and charges, interest intermediation, payment for publication, mailing of the letters, obtaining briefing papers;
• engaging external experts with experience of liquidation procedures will greatly simplify and speed up the whole process and will minimize the legal risks that will make liquidation easy and

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