Company dissolution means official and formal closure of the company. Closing a business is part of this process, but there is more than just closing the front door. Assets and liabilities must be managed properly.
Before a company is deleted, the company must first go through dissolution and liquidation. This deletion process must legally go through several phases.
Process of dissolving a company
A company can be dissolved under the following conditions:
As a rule, the 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 entered in the relevant commercial register. The causes of dissolution are those set out in the Articles of Association and applicable legislation.
The dissolution does not presuppose the legal disappearance of the company, but paralyses the ordinary business of the company and gives way to the liquidation period.
The effects of the dissolution are as follows:
- The company enters into the liquidation period immediately.
- 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 will be replaced by annual accounts.
In order to dissolve a company, it is important to engage a lawyer or professional tax advisor to apply for the necessary certificates at the relevant tax office, health insurance and other offices, who should also carry out a review of the provisional final balance sheet. Likewise, 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 resolution should be carried out by expert lawyers.
Two options for the preparation of the financial statements:
- If the net value is higher than the share capital, and in the case of existing reserves, these are taxed as dividends and divided among the shareholders.
- If the equity of the company is less than or equal to the share capital, either bankruptcy must be declared or the shortfall must be compensated by a shareholder's loan (liabilities and assets remain at zero).
After the resolution on dissolution has been entered in the Commercial Register, liquidation commences:
- 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 thus lost).
- Upon the opening of the liquidation period, the administrators will resign from their offices and be replaced by the liquidators who will take over the functions of the managing directors.
- Companies can only be liquidated if their annual accounts for previous years have been registered with the Commercial Register.
The main points of company liquidation and deletion:
1. Deregistration of the company and application for the necessary certificates at the competent tax office, health insurance and other offices.
2. Application for bank certificates for closing the account.
3. If not all the annual balance sheets from previous years have been presented to the Commercial Register, they must be prepared and registered in the relevant Commercial Register.
4. Checking the final balance sheets for register registration.
5. Preparation of the minutes of the General Meeting of Shareholders for the appointment of the liquidators and notarial appointment of liquidators.
Taxes and fees:
- Corporate income tax: If the company has assets, they must be valued at market prices. The positive difference to the book value is increased by between 25% or 30%, depending on the size of the company.
- VAT: If the company still has stocks and goods to be divided among the shareholders, these transactions could be subject to VAT.
- Income tax: For amounts divided between the partners (single persons).
- 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)
Corporate income tax
Until the date of this cancellation entry in the relevant commercial register, the company is liable to corporate income tax.
Likewise, this company deletion entry means the end of the current business year, even if a different date (usually 31.12) was recorded as such in the company statutes.
This is logical, as the legal entity ceased to exist on the day of deletion.
In accordance with the Spanish Corporate Tax Law, the corporate tax must then be declared and, if applicable, 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 of legal acts, such as corporate tax or other necessary acts, the former liquidators may carry them out 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 more information about this subject, read our article about steps on how to dissolve, liquidate and cancel a company and dissolution taxes, requirements, motives and more.
You can contact our lawyer’s office by phone or email at any time. We will help you throughout the process of dissolution. Our firm in Barcelona specializes in legal advice and representation on all types of company liquidation procedures.