How to dissolve a Limited Company

To dissolve a Limited Company that has decided to cease its activity, a dissolution process must be carried out to no longer pay corporate tax.

Despite having ceased its activity, a company must continue paying its taxes. It does not matter if you no longer have workers or income; you must carry out the Limited Company dissolution process, or failing that, inactivity (it allows you to be without operating for a while, but you can recover it later), to stop facing your tax obligations.

Causes that cause the closure of a limited company

There are mainly two reasons to dissolve a company:

• Due to debts: In the event of not being able to meet the payments nor refinance the debts to continue operating, the company must be dissolved. There is no other option since, in order to declare it inactive, you must be up to date on all payments.
• Due to cessation of activity: when the partners, for whatever reason, decide to close the company. It would only be avoidable if one of the partners, or a new one, bought the majority of shares and decided to continue operating with it. In this case, it can be declared inactive, and the activity can be restarted later.

The company dissolution process is the same for either case. To close a company, you must carry out the following steps:

1-Dissolve the Limited Company

To begin, the administrator must call a meeting to approve the dissolution agreement and make it public. For it to be public, it must be registered in the registry and add “in liquidation” to its corporate name. This name will remain until the last day.

2-Liquidate the Limited Company

Now, the liquidation process is open. The administrator must leave his position and put a liquidator in charge to supervise the entire process. The liquidator may be the person who previously served as administrator but must cease from his previous position to be considered valid.

• Inventory and balance sheet: the liquidator must carry out the inventory and balance sheet on the day the liquidation begins. You cannot alter any data; it must reflect the company’s real situation.
• Operations: you must end current and previous operations to end your activity. This is done so that the company becomes inoperative.
• Debts: pay the company’s debts with banks, partners and other creditors. If you cannot pay all the debts, you must declare a suspension of payments and begin a different process.
• Assets: before informing the partners, the assets that remain in the company must be sold.
• Partners and creditors: it is essential to inform them of the status of the liquidation process so that they can follow its evolution and ensure that everything is being done legally.
• Final balance sheet: prepare a final balance sheet and agree with the partners on a division of the company’s remainders, if any.

For it to be effective, it is mandatory to present the annual accounts after the liquidation and to be up to date with the payment of taxes, both corporate taxes and property transfer taxes and documented legal acts (1%).

3-Extinguish the Limited Company

It is the last step and the one that completes the liquidation. The public deed of extinction of the company must be registered in the registry, including the following information:

• Final liquidation balance
• List that identifies all partners
• Value of membership fees
• The final general meeting where the liquidation and distribution were approved
• The deadline to challenge the settlement agreement
• Proof of payment from creditors or payment deposit.
• Proof that the partners have received their settlement or payment deposit.

Once all the procedures have been carried out, a copy is sent to the Treasury, and you will no longer be able to prepare documents or carry out any activity.

Six months later, you must submit the corporate tax return for the last time, and thus, your company’s dissolution process will be completed.

Can the Limited Company be recovered later?

No, once this process is finished, there is no turning back. What can be done is not to liquidate the company and declare it inactive.

This means that you do not have to pay anything for a time, and if you decide to work with the company again in the future, you can activate it and restart your activity.

If you need to know more you can consult our Business Dissolution.