Liquidation and Deregistration of a Business
19

Sep 2019

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 or winding up 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.

In order to make the correct decision, the owner or the Management of the company needs to understand the difference between Company Liquidation Services and Company De-Registration services and what the distinct features of both of them are.

First, let us understand what Company Liquidation is.

Company Liquidation: Meaning

Company Liquidation is a process in which the business activities of the company will cease, and all the assets of the company will be sold off to compensate for the debts of the company. 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 this balance will be distributed among the owners and the shareholders.

If a business has taken much debt and is unable to repay the loan back, the company will have to undergo the Liquidation Process. This liquidation can be bifurcated into two different 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 first and not resort to 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.

Company De-Registration Services

The Company De-Registration services are very different from Liquidation services. De-registration is a comparatively more comfortable and more straightforward process. It means that the company which has been De-Registered does not have any legal status anymore. Such companies are not registered in the books of the company registrar. The process of De-Registration mostly refers to a solvent company that 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 small but distinct difference between the two processes. Company liquidation means that the company will no longer exist and after the liquidation process, the company will come into 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.

  1. Appointment of a Liquidator

A liquidator is appointed by the board of directors who will oversee and take care of all the various processes during the liquidation of the company.

  1. Resolution Formation

A formal resolution stating the name and address of the liquidator who will be overseeing the complete liquidation process is released by the board of directors of the company. This is done to maintain the transparency of data.

  1. Print in Newspaper

The resolution stated above will be printed in two local newspapers so as to make clear that the company is going to be liquidated and no further investments should be made by people.

  1. 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.

  1. Issue of the Liquidation Report

Considering the claims, the liquidator will perform the relevant liquidation duties, and when said assignments are complete, the liquidator must prepare a report of liquidation of the company which will provide an overview of the complete liquidation process of the company.

  1. 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, you can read our blog titled “Your Guide to Company Liquidation in the UAE.”

Company De-Registration Process

The method of de-registration of business is relatively simple, with only four significant steps.

  1. 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. 

  1. 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.

  1. Final De-Registration

On the acceptance of the application, the Federal Tax Authority (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.

  1. 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.