Dissolving a business may come after a financial disaster but sometimes a formal stepping stone to start a new company.
Whatever the case, closing down a limited company is a legal process.
Therefore, it is desirable you have a lawyer assist you to remove the company’s name from the official register.
Complying to national legislation
In most cases, limited liability companies, LLC for short, are the subject of striking off from the national register. These companies, corporations, and organizations are obliged to file annual reports unless they want to get penalized.
Even when your company is stable, it is important to honour all legal procedures. The same principle of fairness goes when the time comes to liquidate your business.
Each country, and in most cases, different autonomous states or territories have their own forms that you need to fill out.
In the case of a dissolution, you will need a certificate of termination that renders your enterprise no longer liable for filing taxes.
Furthermore, you won’t need to write the aforementioned annual reports anymore.
In addition to striking off your company from the register, you need to file a report to tax collectors as well.
A report of corporate dissolution is necessary to termite your taxpayer status.
As you might have noticed, these legal shenanigans can be complicated, so hiring an experienced business lawyer is a smart move to make.
Taking care of debt
In financial terms, you primarily need to pay out all the company’s debts.
Afterward, you should use the remaining funds to pay business owners and shareholders as well.
Paying valid debts will ensure your business partners get the money you owe them and that former employees are compensated.
Then, according to shareholders’ agreement or the operating agreement, it’s time for the management to distribute the remaining proceeds to shareholders and owners.
After all, they were the ones who guaranteed financially for your business.
Like the legal aspect of dissolution, the financial side to paying debts and distributing compensation can be tricky.
Business lawyers will help the compensation be fair and that they are executed to the letter of the agreements in place at the time of the dissolution.
A voluntary liquidation due to insolvency
If a company becomes insolvent, then the members of the company can pass a resolution that would initiate the dissolution process.
During a voluntary liquidation the assets of the company are distributed among creditors, according to their individual claims.
During a creditors’ voluntary liquidation (CVL), a liquidator is appointed to realize the company’s assets and investigate its affairs.
Then, he or she pays distributions to creditors according to priority and return any surplus to members.
Cancelling business licenses
Apart from legal and financial obligations, you need to take care of licensing.
In fact, there are numerous local and national agencies, both governmental and NGOs, you applied for a license.
Dissolving your business means that you need to terminate licenses and revoke permits.
Also, your company probably joined an association or two. These work on subscription bases, so unless you let them know you are going out of business, the memberships are going to keep coming.
You can’t expect business associations and agencies to search the register on their own; you have to let them know about the dissolution.
Furthermore, failing to cancel licenses and permits, you risk having your brand name stolen or misused.
Unless you want to cover other people’s debt, we suggest you hire a lawyer to scrutinize all of your affiliations and effectively terminate them.
Corporations and partnerships alike are obliged by law to inform creditors that the dissolution procedure had begun. The term “creditor” is widely used in this sense, as it encompasses suppliers, lenders, vendors, service providers, etc.
Essentially, everyone you’ve done business with needs to be contacted not only to settle any outstanding debt but to work out how the business partnership will be ended to mutual benefit. When getting touch in touch with creditors, you need to inform them about the address (and e-mail address) to which they can send claims and the deadline to submit thee claims (in most cases, three months from the notice date).
Notifying the public
State or municipal laws might state that you need to notify the broader public about the dissolution. An ad in the local papers of the business gazette published by the regional chamber of commerce might be mandatory; the lawyer you hire will know the exact procedure.
Such public notices inform not only the public but the creditors as well, as this form of notifying is called constructive notice. The idea is to provide all interested parties with the opportunity to be informed about the upcoming dissolution, so they can take appropriate action.
Now is the right time to collect
Settling creditor claims can be unsettling, pun intended, so you’ll all the extra cash you can muster. A great way to increase your cash flow is to remind all the enterprises and individuals who owe you money that they need to pay as soon as possible.
In fact, after the business is striking off process is over; you’ll have zero chance of getting your money back. Not even the best corporate lawyer in the world can guarantee that they’ll be able to collect a debt on behalf of a company that no longer exists.
As you have seen from the various points listed above, having a lawyer you can trust by your side is a huge advantage during the dissolution of your business. Sure, you can meddle with all the legal issues on your own but you’ll just end up losing valuable time and resources.