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Company dissolution

The meaning of company dissolution attributes to a process of formally and officially closing the company. The terms 'formally' and 'officially' imply that company will no longer exist in public registers. There are multiple ways to close a company and each way has slightly different process, but generally, dissolution is the natural result of any of these procedures. Two most common ways to dissolve a company are by liquidation or by bankruptcy.

Liquidation of a company

Liquidation is a voluntary choice and it means that shareholders vote to close the company (or if there is only one owner, he decides to do so). After completion of all formalities and submission of all applications, liquidation process can begin. Further process will vary depending on legal form of the company and jurisdiction. For example, some less complex legal forms usually can be dissolved in a few days, while in order to dissolve other legal types, the whole process may take up to three months or even longer. Everything is based on the amount of assets, number of creditors and overall case complexity level.

Filing bankruptcy

Bankruptcy process is usually enforced: it is requested by creditors, third parties or by the owners of the company, if during the liquidation or insolvency process a company cannot settle its liabilities. Bankruptcy process takes longer time period than liquidation and in most jurisdictions decision of court is necessary to initiate the process.

It is essential to dissolve the company officially, as there are many drawbacks by not doing so and leaving the company idle. Firstly, you cannot claim the property of the company. As long as the company remains in public register, it is recognized as a legal entity. Secondly, there can be legal consequences for not dissolving a company. For example, in some countries by not dissolving the company, you will still be required to pay corporate taxes in a fixed amount annually, even if the company is dormant and does not perform any commercial activity. There may be other regular obligations to be followed, e.g., annual reports, bookkeeping, auditing, etc.

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