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5 Steps to Dissolve, Liquidate and Cancel a Company

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Before it comes to a company’s cancellation, the company must be dissolved and liquidated before. This cancellation process must legally go through several phases. We will explain this procedure below:

1. The dissolution of the company

The dissolution usually requires the approval of the general meeting in order 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 entered in the relevant commercial register. The reasons for the dissolution are those laid down in the articles of association and the legislation in force.

The dissolution does not presuppose the legal disappearance of the company, but paralyzes the company’s ordinary business activity and gives way to the liquidation period.

The effects of the dissolution are as follows:

  • The company immediately enters into the liquidation period.
  • The term “in liquidation” must be added to the company name.
  • Interruption of all lucrative activities of the company.
  • The management is replaced by the liquidators.
  • If the liquidation process is extended for a period of more than one year, the annual balance is replaced by annual accounts.

For the dissolution of the company, it is important to appoint a lawyer or professional tax adviser to apply for the necessary certificates from the relevant tax office, health insurance company and other offices, who should also carry out a review of the provisional closing balance. Also, the drafting and, in most cases, the translation of the minutes of the general meeting in which the dissolution of the company is decided and the draft notarial certification of the dissolution decision should be carried out by expert lawyers.

2. The preparation of the financial statements

The preparation of the financial statements may give rise to two options:

  • If the net value is higher than the share capital, and in the case of existing reserves, these are taxed as dividends and distributed among the shareholders.
  • If the company’s equity capital is lower or equal to the share capital, either bankruptcy must be declared or the shortfall must be compensated by a shareholder loan (passive and active remains at zero).

Note: Real estate cannot exist in the asset and must, therefore, be converted beforehand.

3. Liquidation begins after the dissolution resolution has been entered in the commercial register

The dissolved company retains its legal status during the liquidation period (max. 3 months). During this period, the term “in liquidation” must be added to the company name (the legal personality of the company is lost). With the opening of the liquidation period, the liquidators will resign and be replaced by the liquidators who will assume the functions of directors. Companies can only be liquidated if their annual accounts for previous years have been registered with the Commercial Register.

4. Tax and fee levies process

It is also necessary to process the tax and fee levies, which can be the following:

  • Corporate income tax: If the company has assets, it must be valued at market prices. The positive difference from the book value is increased by between 25% and 30%, depending on the size of the company.
  • VAT: If the company still has stocks and goods to be distributed among the shareholders, these transactions could be subject to VAT.
  • Income tax: For amounts distributed between shareholders (individuals).
  • Tax on patrimonial transfers and legal acts: This is 1% above the total value of the transferred goods and rights (this tax is liquidated in the autonomous regions and not in the Ministry of Finance).

5. Cancellation entry in the relevant commercial register

The company is subject to corporate income tax until the date of this cancellation entry in the relevant commercial register.

This entry also means the end of the current financial year, even if another date (usually 31.12) is recorded as such in the company’s articles of association. This is logical, as the legal entity ceased to exist on the day of cancellation.

In accordance with the Spanish Corporation Tax Act, the corporation tax must then be declared and paid within 25 calendar days of the end of the following six months after the cancellation entry.

In order to comply with the formal requirements relating to legal acts, such as corporation tax or other necessary acts, the former liquidators may carry them out themselves on behalf of the extinguished company even after its official cancellation or instruct third parties to do so on their behalf.


If you have any questions on this subject, please feel free to contact our office at any time.

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