Bankruptcy is not the only cause for the closure of a company. Various reasons can result in a company being wound up.
Various reasons can make an entrepreneur close their business. There are as many voluntary reasons, such as the decision to cease trading due to lack of future prospects, as there are involuntary reasons, such as bankruptcy.
The legal procedure for closing a company usually includes three stages:
- Winding-up. The legal end of the company. This intermediary stage, which must be registered with the trade register, entails de-registration once the company is liquidated.
- Liquidation. Operation consisting of selling all the company’s assets and paying off its corporate debts using the proceeds. This stage can last several years in some cases.
- De-registration. Permanent removal of the company’s name from the trade register.
However, winding-up does not always result in liquidation. In the following instances, the company continues its activity even after winding-up, but within a different structure:
- Change of legal status, for example, from limited company to limited liability company.
- Merger with takeover of assets and liabilities by another company of the same legal structure.
- Takeover by a corporation under public law.
We do not usually talk about closure for these types of winding-up operations, although they do also result in deletion of the former company from the trade register.
Depending on legal structure
Listed within the law, the causes justifying the winding-up of a company depend on its legal structure.
As far as limited companies (SA) are concerned, winding-up occurs in the following instances:
- by a decision of the general meeting recorded in certified form;
- by the initiation of bankruptcy proceedings;
- by a ruling when shareholders representing at least 10% of the share capital request winding-up for just causes;
- in those instances provided for in the articles of association or by law, such as in the event of merger, when the company purpose is attained, etc.
Limited liability companies (SARL) can be wound up for the same reasons as limited companies. However, when the shareholders’ meeting requests the company be wound up, it only happens if a majority of three quarters of shareholders representing three quarters of the share capital votes for it. A single shareholder may also, for just cause, apply to the courts for winding-up.
Cooperative companies can be wound up for the same reasons as limited companies. When the general meeting is requesting the company be wound up, it only happens if a majority of at least two thirds votes for it.
As regards an ordinary company, the main causes are as follows:
- the company purpose is attained or has become unrealizable;
- shareholders decide to wind up the company unanimously;
- a shareholder dies;
- the contract is terminated by one of the shareholders;
- one of the shareholders undergoes seizure or bankruptcy or is disqualified;
- a ruling pronounces winding-up for just causes.
General partnerships can be wound up due to the same causes as ordinary companies, as well as by the initiation of bankruptcy proceedings. When a shareholder goes bankrupt, the creditor may request, by notice given six months in advance, that the company be wound up. If the other shareholders want to avoid bankruptcy, they can exclude the shareholder by reimbursing them the amount due from the company assets or disinvest the creditor.
Limited partnerships can be wound up due to for the same causes as general partnerships.