8 Reasons for Company Liquidation in Dubai

Sep 2019

Establishment of a business entity in Dubai demands continuous maintenance, which involves carrying out different activities like accounting, auditing, bookkeeping, and tax services. Proper maintenance of these services will lead to error-free company books based on which business plans can be done effectively. On the contrary, non-maintenance of specific grounds for a long time would lead to a company liquidation, where the existence of a company is dissolved in a legal way, which is a risky process while states that the owners agree to stop to business operations. This article talks about eight core reasons that lead a business to the edge of company liquidation. Let’s have a look.

Reasons for Company Liquidation in Dubai

Below-mentioned are few core reasons, and if you find them existing in your business, then it’s an alarming call for you to move towards liquidation.

1. Lack of Expertise Guidance

Ranging from company incorporation to the performance of different business tasks, core guidance is required at every point to ensure that the business processes are carried out effectively. Lack of proper guidance during business decisions and strategy building like expansion, mergers and acquisitions etc. will lead any business altogether to a different direction, and when things go out of control, company liquidation is the ultimate decision that investors opt for.

2. Failure to Implement Business Practices

Business practices like benchmarking, forecasting or financial and strategic planning are used by organizations so that it becomes easy for them to achieve the individual and team goal, leading the way out to meet the organizational goal. For example, if you have not done any financial planning for your business, you will lose control of the financial part of your business. In such a case, cash outflow will turn up to be much more as compared to the cash inflow, which will result in a financial breakdown of your company. As a result, you will not be able to generate more profits and suffer a huge loss, and continuous financial loss will lead you to opt for company liquidation.

3. Wrong Cash Flow Management

Keeping track of the business cash flow cycle is vital for any business. The cash inflow takes place when your business receives revenue, while the outflow takes place when the business operating expenses are to be met. Continuous outflow and no inflow will lead your business into trouble to reserve cash and earn a profit. On the other hand, a constant inflow of cash and no outflow will stop the company operations. As a result, a balance needs to be maintained accordingly to suffice the purpose of both. If a company faces such an issue for a long time, then this would ultimately lead to company liquidation.

4. Mismanagement of Creditors and Debtors

Creditors and debtors come into the picture from the very first day of your business incorporation. Unable to maintain a proper ratio between both turns up to be a problem for your business as you need to pay your creditors and gather the debt amount from your debtors during a specific period. If a business entity is not able to pay the amount to the respective creditors on time, it will affect the business relationship, ultimately turning it difficult for them to get goods on credit. Alternatively, if a business is not able to fetch the debt amount from debtors for a long duration, it would turn to increase in bad debt for the company, leading the company into losses.

5. Lack of Market Research

Market research turns out to be necessary if a business wants to stay ahead in the competition. Failure to keep a track on the competitor’s performance will not give the complete market scenario, and your business will be lacking behind. Not knowing the market trends properly will lead your business to suffer continuous loss as you may not be able to grab the attention of your target audience.

6. Improper Maintenance of Book of Accounts

Inaccurate accounting records will lead you to incorrect business numbers, based on which the decisions taken will also turn out to be wrong for the organization. It turns out to be very important to conduct an audit on the accounting books to identify whether the business numbers are relevant or not. Any manipulation done in the accounting or bookkeeping records will lead your business to face severe loss.

7. Failure to Perform Company Audit

Audit turns out to be the inspection process that highlights the complete working process of an organization within an entire business cycle.  There are instances where internal chaos or politics have led to company liquidation. To avoid such scenarios, conducting the overall company audit is a must, wherein the auditors evaluate the company records and also interacts with the employees of the organization. Any loophole in the system can be quickly figured out, and relevant measures can also be taken accordingly with subject matter expert’s advice.

8. Non-payment of Tax

Failure to pay the taxes on time would lead your company in trouble. If the corporate taxes aren’t paid on time, that leads to a decrease in the goodwill that the company hold in the eyes of auditor, government and the shareholders. At the same time, you should also deal with Tax and VAT return filing. Failing to carry out these activities will lead you to loss digging out a way for company liquidation.

Non-maintenance of company proceedings will lead a company to stand at the edge of liquidation. Now, to process this liquidation in a legitimate way, it involves a vast documentation process turning it to be a complex one. On the other hand, several aspects need to be considered regarding the division of company assets, which depends on the ratio held by the shareholders. Taking the help of a professional expert will help you to deal with the process in an easy way. We at JAXA Chartered Accountants are here to help you out to deal with the company liquidation process. Our business experts will help you to deal with the process in a hassle-free way, which makes us one of the top accountants in Dubai. If you are facing a problem to initiate the company liquidation process for your company, do contact us today-we’d be glad to assist.