Terms and types of LLC liquidation
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How fast can a legal entity, in particular a LLC or a private enterprise (PE), be liquidated?
This is one of the most frequently asked questions concerning the legal entity activities, or to be more precise, concerning the logical completion of its activities.
The time frame depends on the liquidation method, budget deficit, debts to creditors, as well as on the tax authority, where the legal entity is registered. In this publication we will discuss all possible options that will help you to understand and estimate the time required for this or that procedure.
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A legal entity may be liquidated:
- By a winding-up order for reasons unrelated to its bankruptcy. For example, when the registration of a legal entity is recognised as invalid. As you know, in Ukraine, any court procedure lasts for several months and more.
- By bankruptcy proceedings. This procedure usually takes up to three years. The bankruptcy case is initiated in case of insolvency of the legal entity to restore its solvency.
- By the decision of its owners.
In this article, we will discuss the last option, which is the most popular one.
Liquidation by the decision of the owners
The entire procedure cannot be completed earlier than two months after its commencement. This period is given to creditors to present their claims.
The liquidation of a LLC or a PE involves the following mandatory stages:
1. The key challenge is a tax audit, as it can significantly delay the whole process. Due to the constant overload of inspectors, it can take several months to get the audit scheduled.
Note! The process can be speeded up by constantly reminding about your case or by lodging a complaint to the management of the relevant tax authority. However, when lodging a complaint, it needs to be considered that the Tax Code does not specify the time frame for appointing a tax audit after the receipt of a notice of termination of a legal entity from the Registrar.
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After the audit is appointed, it usually lasts for another ten (10) business days (or fifteen (15) business days in case of large taxpayers). The inspector reviews the accounts and other documents related to the company’s financial performance over the last three years.
At the end of the audit, the inspectors shall draw up the Tax Audit Report. If no violations are found, the tax authority will sign a tax clearance.
Note! The tax clearance shall be signed even in those tax departments, which the legal entity has never dealt with. For example, if a company has never been a VAT payer, it should still be “released” by the tax department responsible for VAT payers.
On average, the procedure of signing the tax clearance takes up two weeks. But in practice, there have been cases when this procedure lasted for one and a half or even two months.
2. In parallel with the tax audit, the legal entity may also pass the audit of the social security agencies. They shall issue a Social Security Clearance Certificate showing that the company has no outstanding debts and the Deregistration Certificate.
3. The final stage in the liquidation process is considered to be the submission of the documents to the state archive. For example, a state registrar who makes an entry in the Unified State Register about the termination of a legal entity does not require certificates of its deregistration in all the abovementioned institutions, but only an application and a certificate from the archive office.
The state archive office offers a list of documents to be submitted by the legal entity.
Note! If any of the documents have been lost, there should be a certificate from the police that no criminal proceedings have been opened and a publication in the media about the loss of documents. However, it should be noted that the certificate from the State Fiscal Service of Ukraine on the legal entity deregistration is valid for only two months. Of course, after this period, the tax authority will not register the legal entity again. But this certificate can’t be used anymore. You will have to apply for a new one. This means, you’ll need to sign the clearance certificate once again and spend additional time.
Related article: Peculiarities of Legal Entity Dissolution Resulting From Its Owners’ Decision. Part 1
Alternative liquidation and its period
Many business owners have heard about the alternative liquidation. In fact, this is not exactly the liquidation of a legal entity, but it is the fastest way to to exit the company. It usually takes no more than three (3) business days.
What is the procedure for the company’s alternative liquidation?
The company owners, who want to exit the company for one reason or another, can sell their corporate rights to third parties, often at a token cost. There are persons who can professionally handle this procedure.
There are several scenarios for what happens to the company:
- A new owner immediately starts the liquidation process;
- Within the next three years, the company will completely terminate its activities, submit “zero” reports to the state authorities. The liquidation process will begin in three (3) years.
If your business has become unprofitable/uninteresting, or you need to leave the country and want to exit the company by alternative liquidation, you should be especially careful. Unfortunately, not all “liquidators” are responsible enough to handle the procedure quickly.
With extensive experience in winding up LLCs an PEs, our law firm can handle your case professionally and efficiently.
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