Enterprises are a source of wealth and employment, and we all have an interest in their creation, operation and continuation. Nonetheless, the time may come when an enterprise must come to an end.
There are widely varying reasons which may lead to the winding up of an enterprise: it has achieved the purpose for which it was created, the period for which it was established has expired, the shareholders decide to close it down or the enterprise cannot continue performing its operations because it is not economically viable.
Enterprise with Company Status
Cessation of Operations or Liquidation
A distinction must be made between two circumstances: enterprises which take the form of a company, and enterprises which are the property of a sole trader.
We here refer to company enterprises. From a legal perspective there are three reasons why a company enterprise may be wound up:
1- The legally established circumstances. The law is applied directly without the need for a declaration by the shareholders. For example, if the duration of the company established in its bylaws has expired.
2- Reasons provided in law or in the company's bylaws, which must be declared by the general shareholders' meeting. A judge may otherwise issue this declaration. Examples of such reasons: execution of the object for which the company was founded.
3- There is a third possibility: a company may be wound up voluntarily by its shareholders.
In order to facilitate continuation of the enterprise. The shareholders may agree to revive the company which has been wound up. The following conditions must apply: the grounds for winding up must have ceased, there are sufficient corporate assets to support the company's operations, and distribution of the company's assets among the shareholders has not begun.
If any of the grounds for a company to be wound up apply or are declared, then it will be liquidated.
The winding up of an enterprise means performing the actions required in order to terminate its operations in an orderly manner.
This legally established procedure allows those persons with an interest in the company: shareholders, clients, suppliers, creditors and debtors, to protect their interests.
The process is performed with the guarantees established in law and is published in: the Companies Register, the Official Gazette of the Companies Register, the company website or, in the absence thereof, a newspaper. The winding up process takes as long as required in each case.
The winding up of company enterprises is typically performed by their directors. Other liquidators may be appointed. The liquidators are answerable to the shareholders for their actions. They perform the following tasks:
1- Establish the assets and financial situation of the enterprise when the reason or grounds for winding up arise (by means of an inventory and balance sheet).
2- Perform pending company operations, in other words those which had already begun but not been completed.
3- The liquidators perform other actions required in order to prepare for winding up the company's assets: they maintain the accounts, collect credits, pay debts, sell the company's assets and inform the shareholders of their actions.
4- Following completion of the preparatory operations. The liquidators present the shareholders with the following reports: 4.1 A report on the equity and financial situation of the company (inventory and balance sheet). 4.2 Another report on the actions taken 4.3 A proposed distribution of the assets remaining following conclusion of pending operations, collection of credits and payment of debts. These are approved by the shareholders.
5- They distribute the resulting assets among the shareholders. In accordance with the terms of the bylaws or, in default thereof, as agreed by the shareholders' meeting.
In the case of public limited companies, shareholders representing a substantial proportion of the capital stock, at least 20%, bondholders or the government in certain cases may appoint an overseer to supervise the winding up.
The liquidators are responsible before the shareholders and creditors for their administrative actions and any possible damages which they may cause intentionally or through a lack of diligence.
Winding up of the company
Following distribution and the resulting assets. The liquidators call on a notary to draw up a public deed winding up the company, which is registered with the companies register. This serves to terminate the company's existence. The liquidators file the documents connected with the company at the companies register. Entries regarding the company are cancelled in the register.
To obtain more detailed information about the winding up and liquidation of companies, consult the Capital Companies Act which sets out the corresponding general regulations from Article 360 onwards.
Along with the general regulations, the following regulatory aspects must be considered: taxation, employment, social security, environment and those governing specific economic sectors.
In order for an enterprise to be wound up, official procedures must be performed to deregister the enterprise with the various public authorities with which it was registered, or serve notice of the consequences of the cessation of operations: Social Security, Tax Agency, Employment Services, other government ministries, Autonomous Communities and Local Authorities.
In the case of sole traders, the cessation of operations involves: conclusion of pending operations, payment of debts, collection of pending credits. As the sole trader is the only owner, he or she will remain the owner of the assets which remain following conclusion of the enterprise's operations. The procedures are minor.
All that remains is to perform the necessary official procedures to notify the public authorities of the cessation of operations: deregistration from the Tax Agency census of businesses and with the Social Security. If there are employees, the Employment Services must be notified of their redundancy. Other official State registers. Autonomous Communities or Town Councils.
Enterprises subject to credit arrangements or liquidation
Enterprises taking the form of companies or sole traders may on occasion be unable to continue their operations, or settle their debts in a regular, in other words proper, manner. The regulations provide for these particular situations by means of the Insolvency Act. This sets out the specific regulations governing liquidation. They may be consulted via the following links.
When filing for bankruptcy is the only option left for a business owner, it pays to cut losses, initiate proceedings sooner rather than later, and move on to a new business project.
In order to wind up an enterprise, the regulations establish an orderly process, with public disclosure and guarantees to ensure that those connected with the company or enterprise can defend their interests. This requires a number of procedures to be performed with: the official gazettes, notaries, companies register and courts. These are specified in law. The following links may prove useful in providing information and performing a number of these procedures.
Alongside these procedures, processes must be undertaken with a number of public authorities to serve notice of the cessation of operations: deregistration of the enterprise with the Tax Agency, the Social Security, Employment Services and other departments. Depending on the enterprise's operations, in some cases specific procedures must be followed with the various public authorities: at the State, Autonomous Community (region) or local authority level. Many of these can performed online.