Winding up - Spain
Final causes of the activity of a business: corporate liquidation and dissolution
Causes of dissolution
Companies provide a source of wealth and employment: continuity of their existence and development is of interest to society as a whole. Nevertheless, there may, at any given time, be reason or cause to explain why the company has stopped operating. There are a number of reasons that may lead to the dissolution of a company: the company may have achieved the purpose for which it was created, the period of time for which it was created may have passed, the partners may have decided to terminate the operations of the company, or the company may no longer be in a position to continue carrying out its activities due to a lack of economic viability, among other reasons.
From a legal point of view, the causes can be of three types:
- Those established under the law and applied directly without having to be declared by the partners. For example, at the end of the period envisaged for the duration of the company in the statutes.
- Grounds provided by law or by the statutes of the company that must be declared by the general assembly. In absence thereof, the judge may make the relevant declaration. For example, the company having achieved the purpose for which it was created, or for other reasons specified in the statutes.
- There is also a third possibility - the dissolution of the company by voluntary agreement of the partners’ assembly.
When the reasons for the termination of the operations of a company enter into force or are declared, the laws provide that liquidation of the company is initiated and takes place.
The aim of this is to take the actions necessary to terminate the operations of the company, in an orderly manner. This takes place by means of guarantees provided by law and advertisements provided by the Companies Registry, the Official Companies Registry Gazette, the company’s web site or in the absence thereof, a newspaper. This phase lasts as long as is necessary in each case. It allows people with interests relating to the company to receive information on what is to be produced as part of the operation of the company, and to defend their interests. These include partners, customers, suppliers, creditors and debtors.
The liquidators are identified during liquidation. These are the individuals who are in charge of the following tasks:
- Determining the equity and financial position of the company at the time that the cause or causes of dissolution are produced (through an inventory and balance sheet).
- Performing pending business operations, i.e. those initiated beforehand but which had not been completed. Liquidators also carry out the actions necessary to liquidate the assets of the company: bookkeeping, credit collection, debt payment, sale of the assets of the company in order to raise revenue, informing partners of their actions.
- Once the aforementioned operations have been completed, liquidators present to the partners a report on: the assets and financial position of the company (through an inventory and balance sheet), another report on the actions taken and proposed division of the assets left after outstanding transactions have been carried out, credit collection, and payment of debts. These are then approved by the partners.
- Any remaining assets are split between partners. In the case of public limited companies, partners, who make up a significant part of the capital (20%), bondholders or, in certain cases, the government, may appoint an auditor to supervise the liquidation process.
Closure of the company
After the division of remaining assets. Once the liquidation operations have been finalised, the liquidators must issue a public deed for company closure in the presence of a notary. This confirms the closure of the company. The documents relating to the company are submitted to the Register of Companies. This cancels any entries relating to the company.
For more detailed information on the dissolution and liquidation of companies and their legal requirements, you can consult the Corporate Enterprises Act which regulates this both at the general level and with particular regard to partnerships, limited companies and public limited companies, via Article 360.
Along with the above actions, the following should also be taken into account: tax rules, labour rules, social and environmental security rules. These regulate some of the steps made by the company during its lifetime. The cessation of trading also requires cancellation of a number of administrative procedures relating to the creation and development of the economic activity of the company: de-registering the company from the different public authorities with which it is registered: Social Security, State Tax Office, Employment Services, other Ministries, Autonomous Communities and Local Governments.
In the case of sole traders, preparing for the cessation of trading involves performing pending operations, paying debts, collecting outstanding credit. The sole trader being the sole proprietor, he/she will continue to act as the sole proprietor for any assets remaining after the cessation of trading of his/her company. The procedures involved are minor.
He/she will then be required to perform the necessary administrative procedures to reverse those made when launching activities: de-register from the Tax Office census of entrepreneurs, Social Security in case he/she has employees registered with the Employment Services or other administrative registers of the State, Autonomous Communities or Municipalities.
Bankruptcy and liquidation
Companies in the form of a public limited company or a sole trader are sometimes unable to continue trading, having been declared bankrupt. In these cases, liquidation is necessary and there are specific rules to carry it out.
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.
When ending the life of a company, the regulations allow for an orderly way of carrying out advertising and providing the guarantees needed by the various people involved in the company or corporation to be able to adequately defend their interests. This implies the need for different procedures to be carried out with the register of companies, notaries and courts.
Along with those procedures, it is also necessary to reverse some of the procedures that take place when creating the company. This includes de-registering the company from the State Tax Office, Social Security and Employment Services. Based on the company’s activities, it may, in some cases, be necessary to carry out procedures with the Autonomous Communities and Local Authorities. A number of those can be carried out online.
Check also the legislation on this topic in: