Demystifying the Dissolution of a Limited Company

1. Demystifying the Dissolution of a Limited Company

When an entrepreneur voluntarily leaves their business, they often want to sell their business. Often, however, the buyer just wants to buy the business, leaving the entrepreneur with a former limited liability company, where the most important asset is the transaction price obtained from the sale of the business. Sometimes the company is so identified with the businessman that it is impossible to find a buyer. In this case, the entrepreneurs who have sold or left the business on the one hand will have to decide what to do with the remaining limited liability company, and on the other hand, think of how to withdraw money to buy the limited company. taxes in the most efficient way.
If the businessman doesn't need to get the immediate purchase price for his personal use, he can keep the LTD as his "piggyback" by using it as his own investment company, annual dividends. However, in this article, I will focus on liquidating a limited liability company and its general tax treatment. In the event of dissolution, the entrepreneur should always consult with his auditor or attorney regarding the tax implications and, if necessary, request prior confirmation from the tax authority.

2. Procedures for dissolution of a voluntary limited liability company

When a limited liability company decides to cease operations, it is usually liquidated. The decision to liquidate is passed at the general meeting by a qualified majority. According to company law, a decommissioned company ceases to exist only if it is dissolved by liquidation. Liquidation may also occur due to other provisions of the Finnish Limited Liability Companies Act or statutes of the association. The purpose of the liquidation procedure is to liquidate the company's assets and pay off the company's debts. The shareholder will then receive a portion of any surplus, i.e. a portion of the remaining net assets in the company. If the company's assets are not enough to cover its debts, the liquidator must bring the company into bankruptcy. A limited liability company is considered dissolved after the liquidator has given the final account to the shareholder meeting. The commercial register must also be notified of the dissolution. The dissolution procedure can be carried out in about six months, provided that the creditors do not object and the shareholders agree.

3. Bringing the company into liquidation

The limited liability company is liquidated for dissolution. The procedural provisions are set forth in Chapter 20 of the Companies Act. Liquidation can be voluntary or compulsory. This article only deals with voluntary liquidation.
The purpose of the liquidation procedure is to determine the assets of the company, convert the necessary amount of assets into cash, pay the debts and pay the surplus to shareholders or others under the conditions specified in the liquidation procedure. specified in the articles of association. from the Association. The liquidation procedure ends with the dissolution of the company when the liquidators present a final account to the shareholder meeting. The dissolution will then be notified to the commercial register to register the dissolution of the company.
In the dissolution proceedings, the normal operation of the company is ruined. During the liquidation period, the Company can enter into contracts and receive new debts. As a general rule, however, a company's operations must cease when the company is placed in liquidation, as the procedure is intended to liquidate assets and pay off debts and to calculate savings to pay the shares at a rate of interest. rate.
The decision to dissolve the limited liability company voluntarily is decided by the general meeting of shareholders. The decision requires a majority of at least two-thirds of the votes and shares represented at the meeting, unless a larger majority is required by the articles of association. At the same time, one or more liquidators are selected to undertake the dissolution procedure. The liquidator will manage the affairs of the company during the liquidation process.

4. Start the liquidation process

The dissolution of a limited liability company entails the dissolution of the company, thereby ending its legal existence, i.e. its legal status. The liquidator notifies the registry of the opening of a liquidation proceeding and submits to the Finnish Patent and Registration Office (FIN: Patenttija rekisterihallitus, PRH) a request for a public summons to the creditors of the company. company. The public summons may have been declared at the same time as the liquidation notice and by the liquidator or after, but it must be done immediately. In this summons, the (unspecified) creditors of the company are assigned a period (referred to as the "fixed date or date of appearance") by which they must notify the registrar at the latest. about their valid or invalid claims to society. In addition, the notice of a public summons shall be published in the Official Gazette no later than three months before the due date. The purpose is to know the amount owed and payable by the company. If the creditor fails to notify the claim and the company does not know about it in advance, the right to claim ceases.

If necessary, the liquidator prepares financial statements for the period prior to the liquidation period for which the financial statements have not been presented before the general meeting. Financial statements will be submitted for audit by auditors and then presented to the general meeting of shareholders together with the audit report. The liquidator must liquidate the assets necessary to pay the debts. To do this, after the due date of the public subpoena, the liquidator converts the company's assets into cash in the amount needed to repay the debt. All known debts will be paid. If a debt is in dispute, undue or unpaid for any other reason, the necessary funds are set aside.
After the date of the public transfer, when the debts have been paid or, as mentioned, funds have been set aside for this purpose, the liquidator will distribute the remaining assets of the company. Shareholders are entitled to receive a portion of the net assets of the company for their shares, unless otherwise provided in the articles of association regarding the use of the company's assets.

5. Complete the liquidation procedure

The liquidator drafts and makes the final statement before the general meeting after performing his duties. The final account includes a report on the liquidator's management and a description of the distribution of the company's assets, as well as the auditor's report on the closing statements and final accounts. After these actions, the liquidator summons the shareholders to a general meeting for the final account audit and approval.
The final statement will be notified for registration within two months of the meeting. The liquidator must also file a declaration of dissolution in the commercial register. However, the company was deemed dissolved after the liquidator submitted a final statement to the shareholders meeting. Once deleted, the dissolved company cannot redeem rights or fulfill commitments. If there is new money for the company, the liquidation must be continued.

6. Pay shareholders for their shares

Shareholders are entitled to receive a portion of the company's assets in proportion to their ownership. Articles of association may also contain a provision that funds must be distributed to an entity other than a shareholder.
The liquidator proceeds to liquidate the company's assets to the extent necessary to pay the debts and liquidation costs of the company. The liquidator can decide which assets to sell and how the sale of assets will take place. The distribution is paid in cash unless all the shareholders agree to allocate other assets, i.e. natural shares. Liabilities can also be transferred to shareholders. This requires the consent of both shareholders and creditors. Similarly, with the consent of the shareholder, the company's claim can be passed on to the shareholder as part of his share in the distribution.
As a rule, distributed shares are paid out at the final stage of the liquidation process. However, for securities, the liquidator can advance the shareholder's shares. The payment of such an advance requires the liquidator to carefully evaluate and predict the final number of shares and compels the shareholder to provide security.