Winding up a company involves a series of legal and administrative steps to cease its business activities, settle outstanding debts, and distribute remaining assets among shareholders.

Cessation of Business Activity

The first step in winding up a company is to notify the tax authorities of the cessation of business activities. This is done when the company no longer expects to generate income or incur new expenses, as no expenses incurred after the cessation can be deducted.

Even after notifying the tax authorities, some formal obligations remain in place until all filings for the year of cessation are completed. For example, if the company ceases operations on 31 December, it will still need to file its year-end reports in January and submit its corporate income tax return in July of the following year. It is recommended to keep the company’s bank account active until all tax obligations are fulfilled, as unexpected charges may arise.

Final Liquidation

After the company has been inactive for a reasonable period, the final liquidation process can begin. This involves settling all outstanding debts and distributing the remaining assets among the shareholders. The liquidation must be formalized with a notarial deed and other required documents, which are then registered with the Commercial Register.

It is important to note that the shareholders will be taxed on the assets they receive during the liquidation process.

Until the company is fully liquidated, it can remain dormant for years, with the only obligation being to file an annual corporate tax return in July.

Companies with Debts

A company with outstanding debts cannot be liquidated. If the company cannot meet its financial obligations, it must file for insolvency proceedings before proceeding with liquidation. Insolvency is a legal process aimed at evaluating the company’s assets and liabilities, and a plan is created to distribute available resources equally among creditors under judicial supervision