Difficulties in Liquidating a Company

Liquidating a company, unlike starting one, is neither a simple nor, more importantly, an immediate process. It involves a series of complexities and nuances that are essential to understand if you have decided to close your business. We will explain this using a limited liability company (LLC) as an example.

Risk of a Tax Audit

Perhaps the most important aspect of liquidation is the possibility of an on-site tax audit. During the audit, the liquidation process will be suspended until any debt is settled. Even if the company has been inactive for the past few months and has had no tax activity, the tax authorities may review the last three years. If any relevant circumstances arise, an audit should be expected.

The only way to avoid an audit in this case is to declare bankruptcy, a special procedure in which strict adherence to all deadlines and requirements is crucial.

The Liquidator Does Not Work Alone

Some believe that simply appointing a liquidator, usually the current director, is enough to manage the entire process thoroughly. If the company is dormant, that may be true. But if the company was operational and had debts, assets, and employees, the liquidator will need a team.

At a minimum, this team should include a lawyer, an accountant, a human resources specialist, and possibly an appraiser.

Taxes, Fees, Other Payments, and Reports

Contrary to popular belief, the obligation to pay taxes remains even after the liquidation process begins. You will still need to pay contributions, employee salaries, and other mandatory payments. If you have employees, you will also need to file reports, including personnel reports.

All of this will be required until employee contracts are terminated, and you will need to pay taxes and file reports until the company is removed from the Unified State Register of Legal Entities (USRLE), confirming the cessation of operations due to liquidation.

Registration Refusals

Registration may be refused at any stage of the liquidation process. Refusals may be caused by errors in the documentation or by more complex reasons.

For example, the tax authorities may have doubts about the provisional liquidation balance sheet. Or the company may not have submitted the required information about the start of liquidation to the Federal Register of Legal Entities (FRLE). Finally, they may simply be dissatisfied with the liquidator's passport if it did not pass verification through the Ministry of Internal Affairs databases.

Suspension and Cancellation of Liquidation

The tax authority may suspend liquidation proceedings while an on-site audit is being conducted. Interested parties, such as creditors, may also request a suspension. In such cases, liquidation remains suspended until the debt is settled and recovered.

Furthermore, if necessary, the tax authority may cancel a completed liquidation, restoring the limited liability company at the request of interested parties. This issue relates less to the difficulties of liquidation itself than to the broader question of whether liquidation is the right option in a particular situation.

Simplified Liquidation

In 2023, a simplified liquidation mechanism for companies was introduced. This mechanism allows deregistration from the Unified State Register of Legal Entities by decision of the registration authority, at the request of the participants. The procedure is simpler than standard liquidation, but it is not suitable for everyone.

To use the simplified procedure, several requirements must be met:

• the company has no debts, especially to the budget;
• the company is included in the register of small and medium-sized enterprises (SMEs);
• the company does not own any real estate or vehicles;
• the company is not a VAT payer;
• the company is not in the process of liquidation, reorganization, or bankruptcy;
• the company has not received a decision from the registering authority regarding its upcoming exclusion from the Unified State Register of Legal Entities.

Therefore, this method may not always be suitable.

Our corporate lawyers will help you choose the best option for your situation, guide you through the entire process, and help you avoid mistakes. Call us or write to us now at law@pravoislovo.ru.