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Procedure for the official dissolution of a company

When an entrepreneur completes his project with a non-resident company and it is no longer required, the dissolution becomes important.

In most countries, a company may be dissolved either by a decision of the company (voluntary dissolution), or by enforcement on the initiative of the register (strike-off) for failure to pay annual fees or to meet the requirements for filing financial statements.

In such cases it is important to take into account the difference between the classic tax-free jurisdictions and tax-paying jurisdictions such as the United Kingdom, Denmark, Ireland and others.

In tax-free jurisdictions:

  1. Strike-off by register. In cases where the company fails to pay the annual state fees on time, it will lose firstly the status of good standing, and then it will be struck off the register by enforced procedure.

    In most classic tax-free jurisdictions, this will have no consequence. Subsequently, upon payment of the outstanding fees, the accrued penalty and the cost of restoration procedures, the earlier status of the company in the register may be reinstated.

    Additionally, it is important to note that the company may be reinstated not only on the initiative of the owner, but also at the request of a creditor or another concerned person.

  2. Voluntary dissolution. Under official dissolution of the company where a liquidator is appointed, a liquidation plan is drawn up, the register is notified that the company has no assets or debts by means of filing the document known as a statement of assets and liabilities, and the official procedure of dissolution is carried out over a few months. Following this, a certificate of dissolution may be obtained from the register of companies.

In tax-paying jurisdictions:

  1. Strike-off by register. In a manner similar to tax-free jurisdictions, a company will be struck off by the register by enforcement for failure to meet the state requirements. However, unlike classic tax-free jurisdictions, failure to meet the state requirements may cause not only administrative but also criminal liability for the officers of the company.

    In the event that the company has terminated its operations but the register of companies or the tax authorities have not been notified accordingly, those departments may arrive at the logical conclusion that the company has avoided the filing obligations and hence is subject to penalties. Accordingly, the situation of strike-off should not be considered as an option in tax-paying jurisdictions.

  2. Voluntary dissolution or liquidation is the official method. In most tax-paying jurisdictions, the most comprehensive option such as, for example, the standard dissolution procedure of a Cyprus company, should cover the following steps:
    • filing of financial statements up to the moment of dissolution
    • filing the relevant tax returns
    • paying any accrued taxes
    • placing an announcement in the newspaper
    • receiving an acceptance letter from the tax authorities confirming absence of outstanding payments
    • filing this letter with the court institutions and receiving the relevant acceptance
    • filing this acceptance with the register of companies.

In most jurisdictions, the method of official dissolution of companies is simpler than described above. In particular, official dissolution of the company in such a popular jurisdiction as the United Kingdom, as well as in many other countries, costs in the region of EUR 400-500. Such an expense is quite justifiable compared to the risk involved caused by avoidance of the dissolution procedure and ‘abandoning’ a company in a tax-paying jurisdiction. Also, apart from the above liabilities and penalties, tax-paying jurisdictions apply for the disqualification of the officer. The officer who is the person who infringes the legal regulations may be banned from taking any other positions in commercial enterprises of the given country.

Accordingly, once the project involving the tax-paying jurisdiction is complete, the owner should be interested in the official and legitimate dissolution of the company in order to avoid the above risks.