The dissolution of a company is the official and formal closing of the company.
Closing a business is part of this process, but there is more to it than closing the front door.
Assets and liabilities must be properly managed, just as the executor is responsible for managing all assets, debts and affairs when someone dies.

Before a company can be eliminated, it must be dissolved and liquidated.
This elimination process must legally go through several stages.

The dissolution process

A corporation may be dissolved under the following conditions:

As a general rule, dissolution requires the approval of the general meeting to initiate the liquidation process of the company.
In most cases, the dissolution of the company is decided by a majority of the shareholders’ meeting.

This resolution must then be notarized and registered in the corresponding commercial registry.
The causes for dissolution are those established in the bylaws and in the applicable legislation.

Dissolution does not mean the legal disappearance of the company, but it paralyzes the ordinary business of the company and gives way to the liquidation period.

The effects of the dissolution are as follows:

• The company enters the liquidation period immediately.
• The term “in liquidation” must be added to the corporate name.
• Interruption of all profitable activities of the company.
• The management is replaced by the liquidators.
• If the liquidation process extends over a period of more than one year, the annual balance sheet will be replaced by annual accounts.

To dissolve the company, it is important to hire a lawyer or professional tax advisor to request the necessary certificates from the corresponding tax office, health insurance and other offices, which must also carry out a review of the provisional final balance sheet.

In addition, the drafting and, in most cases, the translation of the minutes of the general meeting at which the dissolution of the company is decided and the draft notarial certification of the dissolution resolution must be prepared by expert lawyers.

Two options for the preparation of financial statements:

1. If the net value exceeds the capital stock, and in the case of existing reserves, these are taxed as dividends and divided among the shareholders.
2. If the company’s equity is less than or equal to the capital stock, it must declare bankruptcy or make up the deficit with a loan from the shareholders (liabilities and assets are kept at zero).

Settlement period

Once the dissolution resolution has been registered in the Commercial Registry, the liquidation begins:

• The dissolved company retains its legal status during the liquidation period (maximum 3 months).
  During this period, the term “in liquidation” must be added to the corporate name (thus losing the legal personality of the company).
• At the beginning of the liquidation period, the directors will resign from their positions and will be replaced by the liquidators, who will assume the functions of the general managers.
• Companies can only be liquidated if their annual accounts for previous years have been filed with the Commercial Registry.

The main points of the liquidation and elimination of the company:

1. Deregistration of the company and application for the necessary certificates at the competent tax office, health insurance and other offices.
2. Request of bank certificates for the closing of the account.
3. If all the annual balance sheets for previous years have not been filed with the Commercial Registry, they must be prepared and registered with the corresponding Commercial Registry.
4. Verification of the final balances for the registration of the registry.
5. Preparation of the minutes of the General Shareholders’ Meeting for the appointment of the liquidators and notarized appointment of the liquidators.

Taxes and fees:

1. Corporate income tax: If the company has assets, these must be valued at market prices.
   The positive difference in book value is increased by 25% or 30%, depending on the size of the company.
2. VAT: If the company still has shares and assets to be divided among the shareholders, these transactions may be subject to VAT.
3. Income tax: For amounts divided among the partners (individuals).
4. Tax on property transfers and documented legal acts: this is 1% of the total value of the assets and rights transferred (this tax is settled in the Autonomous Communities and not in the Ministry of Finance).

Corporate income tax

Until the date of this cancellation entry in the corresponding commercial register, the company is subject to corporate income tax.

Likewise, this registration of cancellation of the company means the end of the current fiscal year, even if a different date (usually 31.12) has been registered as such in the company’s bylaws.

This is logical, since the legal entity ceased to exist on the day of the deletion.

In accordance with the Corporate Income Tax Law, corporate income tax must be declared and, if applicable, paid within 25 calendar days from the end of the six months following the cancellation entry.

In order to comply with the formal requirements of legal acts, such as corporate tax or other necessary acts, the former liquidators may perform them themselves, on behalf of the dissolved company, even after its official liquidation, or they may commission third parties to do so on their behalf.

If you are interested in obtaining more information on this topic, you can contact our law firm by phone or email at any time.
We will help you through the entire dissolution process.