In the life of a company, the board of directors might have to take specific steps and make individual decisions. These steps will decide the future of the company. The choice of closing down a company must be the hardest of them all. Depending upon the reasons for such decisions, the board of directors of the company may choose whether to Liquidate the Company or -De-register the Company.
To take the correct decision, the owner or the management of the company needs to understand the meaning of liquidation and de-registration and also the features of each of the of them.
First, let us understand what company liquidation is.
Company liquidation is a process in which the business activities of the company will stop, and all the assets of the company will be sold off. The profits from the selling of the assets will be distributed first among the creditors of the company. If after the distribution among the creditors, some balance is left, then the balance will be distributed among the owners and the shareholders at the point.
If a business has taken much debt and is unable to repay the loan back, the company may have to undergo liquidation. This liquidation can be of two types. The first one is the court-mandated Compulsory liquidation whereas the second one is Voluntary Liquidation.
It is always better to understand the financial situation of the company and not resort on debts to improve the financial condition of the company. Keeping track of the financial health of the company at all times will significantly reduce the chances of liquidation of a company.
Now let us understand what the meaning of de-registration is.
De-registration is a comparatively, more comfortable and more straightforward process. It means that the company which has deregistered does not have any legal status any more. Such companies are not registered in the books of the company registrar. The process of de-registration mostly refers to a solvent company which is no longer functioning properly or is no longer existing anymore.
Difference between Deregistration and Liquidation
For a layman, company liquidation and deregistration of a company are the same, but there is a minimal difference between the two. Company liquidation means that the company will no longer exist and after the liquidation, the company will come to existence only to recover some of the outstanding debts. These debts will be recovered by selling off the assets of the company, and after the selling is done, the company is no longer in existence. Here the business is closed and cannot be run further at any cost.
If a company is Deregistered, it will no longer have any legal status or cannot be associated with any of the government organizations or departments. Here the business may exist and can continue its operations. In both cases, the member parties are liable for any irregularity which might have occurred while the company was in action.
Process of Liquidation
The method of company liquidation may be a bit complex depending upon the size and nature of the business.
Appointment of a Liquidator
A liquidator is appointed by the board of directors who will oversee all the liquidation work of the company.
A formal resolution stating the name and address of the liquidator is released by the board of directors.
Print in Newspaper
The resolution stated above will be printed in two local newspapers.
Claims of the Creditors
A time frame is decided by the liquidator in which all the claims of the creditors or any oppositions against the liquidation process will be noted.
Issue of the Liquidation Report
Considering the claims, the liquidator will perform the liquidation duties, and when said assignments are complete, the liquidation report must be prepared.
Final Closing of the Company
For the final closing, the application for the de-registration along with the copy of the liquidator's report must be submitted to the registrar office.
For more details on the company liquidation, Read Your Guide to Company Liquidation in the UAE.
Process of De-Registration
The method of de-registration of business is relatively simple, with only four significant steps.
De-Registration Application is Submitted
The application for the de-registration of the company needs to be submitted, and within twenty days from the date of submission of the application, all the necessary documents need to be submitted.
All Penalties Should be Paid
All the due taxes and the administrative penalties have to be paid while applying, and all the tax returns need to be filed.
On the acceptance of the application, the FTA chooses a date for the de-registration. If the FTA does not specify a date, the last day of the tax period is selected as the day for the de-registration of the company.
Notification is Sent
After the de-registration, a notification is sent to the registrant within the next ten days when the application is approved.
We can conclude by saying that there is a minor difference between de-registration and liquidation, but choosing the wrong option may result in many problems for the company. Thus, it is always recommended that a company should take the help of a management consulting firm which will take care of all the business related problems. One such firm is "JAXA Chartered Accountants".
At JAXA, we will not only focus on the compliance of the company regarding the liquidation or the de-registration of the company but will also help in the establishment of a new company. For more details on the services offered by us, do contact us – we would love to answer your queries.