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The primary aim of a business is to generate profits for both the company as well as the shareholders, but in certain cases, the company faces huge losses or is unable to change according to the shift in customer demand and preferences and has to shut down all its business activities.
In this case, the management will have to take hold of all the assets of the company and then sell them off so that the money received can then be utilised to pay off the liabilities of the company. If any funds are still left after paying all the liabilities, it should be distributed among the company’s various shareholders.
Importance of Liquidation of a Company
Liquidation can be defined as a process through which a business I brought to its end and all the leftover assets of the business are distributed among the shareholders. Liquidation is actually an exit strategy in which the investors get back a part of a share of what they had invested in the company.
By liquidating the assets of the company, there will be np legal action on the company as they will be halted as soon as the liquidation starts taking place. All the outstanding debts of the company will be written off after the liquidation of the company, and the staff can receive redundancy pay.
One of the biggest benefits of liquidating a company is that it will help in avoiding a very long and gruelling court process. The complete court process can be a very costly affair, and in comparison, the liquidation of the company sounds a cheaper and easier alternative.
Steps to Liquidate a Company in the United Arab Emirates
Any different jurisdictions have their own procedures for liquidation, but the basic steps are the same for every jurisdiction. These are:
- First, provide notice of closure to the respective authority. If the business was established in a free zone, this notice should be provided at least one month prior. This is a very important step, and the skipping of this step can lead to penalties for the company.
- The board of directors of the business should summon a meeting, and in the meeting, a resolution relating to the liquidation of the company will be passed. This decision needs to be attested and notarised by the UAE embassy as well as the UAE Ministry of Foreign Affairs.
- All the assets of the company should be given back to the concerned authority. The exception to this is Leasehold Company and Freehold Company.
- The company should spread the news of the liquidation process. This is done by publishing the news about liquidation in the local newspapers. The news is to be printed in two different languages one in English and others in Arabic.
- Many documents must be kept ready by the management of the company, and such documents should be brought before concerned authority when required. The documents include the following:
- Certificate of Company Formation
- Share Certificate
- Lease Agreements
- The original License issued to the Company
- Originals of licenses issued by the Department of Economic Development (DED)
The management should follow all the above mentioned steps so that the company can be liquidated in an easy and hassle-free manner.
Liquidation of a company can be a very complex matter, and it is suggested that a business should avail the services of a professional. This professional will take special care that all the rules and regulations are followed, and all the assets are properly distributed among the shareholders.
If you want to liquidate your company in the United Arab Emirates in a hassle-free manner, then you must have a look at the services provided by JAXA Chartered Accountants. The experts at JAXA will first understand the current situation and accordingly provide help in the liquidation of your company.
JAXA Chartered Accountants also provide many other services such as Accounting, Auditing, VAT and Tax related services which will help your new venture to grow further. To know more about the services by JAXA Chartered Accountants, Contact Us. We will be happy to provide assistance.
