Dissolving a company: Reasons, Requirements, and more

When the decision is made to dissolve a company it is important to comply with all the indispensable requirements. Only if all the steps set out in the law are followed will the tax and mercantile obligations of the partners completely cease.

On the Internet, you can find many guides on how to open a company, but only a few focus on explaining how to dissolve it. For that reason, we are going to focus on the fundamental aspects that must be taken into account when putting an end to your society.

What does company dissolution mean?

Dissolving a business means formally and officially closing the deal. Although ceasing actions are part of this process, business dissolving involves more than just closing the front door. Assets and liabilities must be properly dealt with, just as an executor would handle all assets, debts and affairs when someone dies.

Why would a company be dissolved?

Directors can apply to dissolve their company if:

  • the company is inactive (i.e. no longer in operation).
  • they no longer have a reasonable use for the company and want to legally close it down.
  • they are in debt and are looking for an alternative to liquidation.

What is the difference between dissolving and ceasing a company?

The first thing you must decide is if you prefer to dissolve society or just cease it.

To dissolve and liquidate society is to put an end to it since it means totally closing society and can not be reversed. If you wanted to return to the activity, you could not do it with that same society.

In contrast, the cessation of society is rather to put a point and separate. Society does not disappear, but it is put on stand by until it is decided to reactivate it.

The 3 ways to get rid of a society

Once the company has been declared dissolved there are 3 ways:

  • Liquidate the company: That consists of stopping the activity, paying creditors and partners and closing the company definitively.
  • Transfer ownership: would be the car of purchase or sale of shares or participations.
  • Contest of creditors: If the payment of the social debts can not be made, the bankruptcy insolvency can be urged that, in certain cases, will lead to the liquidation of the company through the courts.

Reasons to dissolve a company

According to Royal Legislative Decree 1/2010, July 2, a company can only be dissolved if it is for one of the following reasons:

  • Cessation of the activity or activities that constitute the corporate purpose. Specifically, if you have been at least one year without providing any type of service.• If the purpose for which the company was created has ended.
  • If there is an impossibility to achieve the social purpose with which the company was created.
  • If the social organs have been paralyzed so that their functioning is impossible.
  • In the event of losses that reduce the net equity to an amount less than half of the capital stock, as long as it is increased or reduced sufficiently, and whenever it is not appropriate to request the declaration of insolvency.
  • For a reduction of the share capital below the legal minimum, and that is not a consequence of compliance with the law.
  • Because the nominal value of the shares or social participations without vote exceeds half of the paid-in capital stock and the proportion is not restored within two years.

Requirements for the dissolution of a company

To be able to close a company, you must be up to date with payments to the Treasury and to the creditors. That is, you can not have debts with the payment of taxes or with creditors.

Before liquidating the company it is also necessary to liquidate all the assets of the company among the owners.

Finally, it is essential to write the dissolution before a notary.

Whatever the route, the dissolution of the company must be registered in the Official Gazette of the Mercantile Registry.

So that the whole process of dissolving a company is done correctly, we recommend having a specialized agency such as GM Tax, especially if there is any particularity. Contact our tax advisors and we will take care of your case with professionalism, speed and closeness.

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