Sometimes in life, projects and companies might come to an end, and this is where the concepts of liquidation and dissolution come in, allowing you to end things rightfully!
The reasons that could lead to the liquidation of a company are several:
- Reaching the end of company: the life of a society is fixed by their legal status. The maximum duration set by law is 99 years. However, it may be shorter. In this case, and unless the partners meet in a general meeting to decide to extend the lifeline of the company, it is automatically dissolved.
- Dissolution decided by court order: the dissolution of a company can take place at the request of a partner when the functioning of the company is unwell. This is, for example, the non-performance of its obligations by a partner or the disagreement between partners which paralyzes the well-functioning of the company.
It is the judge who assesses on a case-by-case basis whether the situation constitutes a valid reason for dissolution.
- Dissolution decided by the partners: they can, at any time, decide to cease the activity of the company. This is an anticipated voluntary dissolution. The partners must decide on the voluntary dissolution at a general meeting and appoint a joint liquidator. It will carry out the procedures for the liquidation and then the delisting of the company.
The last scenario of dissolution previously mentioned will be further detailed below.
I – Definition of each legal operation
The two concepts (dissolution and liquidation) may seem similar to many business entrepreneurs. Indeed, these two cases are often after one another in time and often confused as they are both essential to close a company.
However, these are two different and extremely important steps in the dissolution of a company. It is important to reach out to a legal and tax professional in order to avoid mistakes that could lead to serious consequences.
Dissolution is distinct from liquidation. Indeed, the liquidation is even the consequence of the dissolution. The purpose of the dissolution is to put an end to the activities of the company.
Liquidation always follows the dissolution process. However, there is an exception, when an EURL whose sole partner is a legal person, the dissolution then operates an universal transfer of assets which makes any liquidation unnecessary.
At this stage, the liquidator takes the strategic decision in place of the governing bodies. He must carry out a complete inventory of the company’s assets and liabilities. He can also dispose of all of the assets of the company, and has the power to break or sign contracts, and to take legal action. He also has a mission to inform the partners about the liquidation procedure.
At the end of the liquidation operations, the liquidator distributes boni or mali (that is to say the final results of the company) between the managers, he is also responsible for requesting the removal of the company from the Trade and Companies Register (RCS).
II – The dissolution procedure
The decision to dissolve
The anticipated decision to dissolve the company must be taken by the partners, under the conditions provided by the articles of association or, in the absence of precision, unanimously. The decision of the partners is the subject of a written act (minutes of the general meeting).
As of the dissolution, the mention “company in liquidation” as well as the name of the liquidator(s) must appear on all deeds and documents issued by the company and intended for third parties.
The general meeting of dissolution
This assembly must make two decisions:
- decide on the early dissolution of the company;
- appoint a liquidator and set his powers and obligations.
The minutes of the general meeting must specify in particular:
- that the partners decide on the early dissolution of the company;
- the place of the registered office of the liquidation;
- that the company survives for the purposes of the liquidation and until its termination;
- the identity of the appointed liquidator;
- the termination of the functions of the managers;
- the extent of the powers as well as the obligations of the liquidator.
The liquidator is normally appointed for an indefinite period and his functions end on completion of the liquidation operations.
Publication of the notice of dissolution
A notice of dissolution must be published in a newspaper through the legal announcements by the legal representatives of the company, within one month from the date of dissolution. The notice must contain the following information:
- the company or corporate name;
- the legal form of the company, the amount of shares,
- the address of the registered office and the registration number of the company (SIRET);
- the reason of the dissolution;
- the contact details of each liquidator;
- limitations on the powers of the liquidator(s);
- the registry with which the deeds and documents relating to the liquidation will be filed.
The statement of change
A request for modification of the registration must be submitted to the one-stop shop for business formalities within the month following the date of dissolution of the company on a standard form (form M2).
The request for modification of the registration in the trade and companies register
This request is mandatory. For this, the following documents must be filed by the court office:
- a copy of the minutes of dissolution (see above);
- a statement of change (form M2 – see above);
- an attestation of the publication of the notice of anticipated dissolution in the legal announcements journal (see above);
- a declaration of non-conviction for the liquidator (only if the liquidator is not the manager of the company).
Following these operations, the company will not be deregistered. This can only take place following the closing of the liquidation operations.
The mission of the liquidator is to complete the business in progress, sell all the assets (in particular the real estate assets), collect the debts and pay all the debts of the company.
The liquidator is required to report to the partners on the accomplishment of his mission, at least once a year in the form of a report.
When the liabilities have been cleared and the assets sold, the liquidator must then establish the liquidation accounts and then ask the partners to decide on the closure of the liquidation operations.
Liquidation accounts result in the recognition of a liquidation bonus or loss. The liquidation surplus corresponds to the positive difference between the net liquidation proceeds and the amount of the contributions. Mali corresponds to a negative difference.
Then, several operations must be performed to bring the liquidation operation to completion. They are:
- The closing minutes of the liquidation operations: at the end of the liquidation, the partners of the company must meet to rule on the liquidation accounts.
They must make the following decisions:
- approve the liquidator’s report, the liquidation accounts and the resulting result;
- decide on the treatment of the bonus or the liquidation mali;
- record the closing of the liquidation, terminate the functions of the liquidator and, where applicable, give power to carry out the formalities for the closing of the liquidation operations.
The minutes of this meeting must be registered for tax purposes when a liquidation surplus arises.
- The sharing of the company: it occurs after the closing of the liquidation. It consists in fixing the share of each partner in the active and, possibly, passive values that emerge from the final liquidation account.
- Declaration of results and payment of taxes: within 60 days following the closing of the liquidation of the company, a declaration of results must be sent to the tax authorities. The last taxes and duties to be paid must be paid when due.
Deregistration of the company
This final step can be summarized as followed:
The publication of the notice of closure of the liquidation operations in the journal of legal announcements
This notice must contain the following information:
- the company name or corporate name;
- the legal form of the company, the amount of share capital, the address of the registered office;
- for each liquidator: title, surname, first name, home address,
- company registration number.
The deregistration declaration
An M4 form must be completed to request deregistration of the company.
The deregistration request on the one-stop shop for business formalities
The application must include:
- a copy of the deed recording the closing of the liquidation operations certified true by the liquidator;
- a deregistration declaration (form M4- see above);
- a copy of the liquidation accounts (see above) certified true by the liquidator;
- the certificate of publication of the notice of closure of liquidation in the journal of legal notices (see above).
IV – The tax consequences of the liquidation of a company
Declaration and taxation of profits
The cessation of activity entails the immediate taxation:
- profits made since the end of the last financial year ended up to the date of transfer or termination;
- profits subject to tax deferment (provisions made before termination, capital gains whose taxation has been deferred);
- capital gains realized on the occasion of the cessation of activity on the sale of fixed assets.
It is therefore necessary to electronically transmit, within 60 days following the cessation, a final declaration of results for companies subject to the real regime (normal or simplified).
For companies subject to income tax, this tax is temporary: any amount of tax claimed at the time of termination is then deducted from income tax calculated on all income received during the year.
If the activity was subject to VAT, it is necessary to upload a declaration:
- CA 3 (regime real normal) within thirty days of termination;
- CA 12 (simplified real regime) within sixty days of termination.
It is mandatory to calculate VAT on all transactions that have not yet been declared on the date of cessation.
The tax for which the company is liable must be paid at the same time as the declaration.
Corporate land contribution (CFE) and Contribution on value added of companies (CVAE)
Regarding the CFE, taxation depends on the date of cessation of activity:
- for cessations of activity on December 31st, the CFE is due for the entire year of cessation of activity;
- for cessations of activity during the year, the CFE is due in proportion to the time of activity over the year of cessation of activity (from January 1st to the day of cessation of activity).
Regarding the CVAE, it’s necessary to subscribe in a dematerialized way, the declaration of added value and salaried employees (form N° 1330-CVAE-SD) and the declaration of liquidation and regularization (form N° 1329-DEF) within sixty days of the termination.
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