Dissolution (of a company)

accounting

The dissolution of a company is the first stage of its legal disappearance and the termination of the relationships it had with third parties.

The dissolution of a company is the first stage of its closure or definitive extinction. Once the dissolution is declared, there are three ways to carry it out: transfer of ownership, liquidation or bankruptcy.

In the case of Spain, dissolution is a formal procedure that must comply with certain stages specified by the Capital Companies Law and which must be registered in the Mercantile Registry (in the “Official Gazette of the Mercantile Registry” (BORME)).

Ways to dissolve the company

There are three ways by which companies can finalize their dissolution:

  • Transfer of ownership: Purchase and sale of the company.
  • Liquidation of the company: This is a process where administrators leave their positions and power of representation to deliver them to the liquidators who will be in charge of distributing the remaining capital stock after paying the debts with third parties. Then comes the definitive closure of the company (extension).
  • Bankruptcy: When it has not been possible to pay all the creditors of the company. It can be requested by creditors or the company itself.

Causes of dissolution

The causes can be diverse, but can be encompassed in a few situations. According to the Law in Spain, the dissolution may occur for any of the following reasons:

  • When the company has not carried out activities that constitute its corporate purpose for at least a year (it has not provided any service).
  • The purpose for which the company was created is over.
  • It is not possible to achieve the social purpose for which the company was proposed.
  • There is a paralysis of the corporate bodies so that it is impossible for the company to function.
  • Losses that reduce the net worth to an amount less than half of the capital stock.
  • Reduction of the capital stock below the legal minimum, which is not a consequence of compliance with a law.
  • If the nominal value of non-voting shares or non-voting shares exceeds half of the paid-up share capital and the proportion is not reestablished within two years.
  • For any other cause established in the statutes.

Dissolution procedure

If any of the grounds for dissolution is met, the administrators have two months to comply with the obligation to call a General Meeting to agree on the procedure.

If the Meeting is not convened or there is no agreement, any interested party may request dissolution by going to a commercial judge.

It is worth mentioning that if the administrators do not comply with their obligation to call the Board, the law establishes that they will be jointly and severally liable for the debts of the company. That is, they must make their assets available for payment to creditors.

Once the dissolution has started, one goes to one of the three routes mentioned above.

Is the dissolution process reversible?

In some cases it is possible to reverse the dissolution procedure, when:

  • The grounds for dissolution have been extinguished.
  • The social patrimony is greater than the social capital.
  • The settlement process has not started.
  • There is an agreement between the partners.

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