What Are Common Causes of Corporation Dissolution?

The dissolution of a company refers to a legal act that has already established a company and ceases its external business activities due to the company's articles of association or statutory reasons, and begins the liquidation of the company, and handles outstanding matters, thereby eliminating the company's legal personality. According to whether the dissolution of a company is voluntary, the reasons for the dissolution of a company can be divided into two categories, one is the arbitrary dissolution cause; the other is the compulsory dissolution cause. ^[1]

The dissolution of a company refers to a legal act that has already established a company and ceases its external business activities due to the company's articles of association or statutory reasons, and begins the liquidation of the company, and handles outstanding matters, thereby destroying its legal personality. According to whether the dissolution of a company is voluntary, the reasons for the dissolution of a company can be divided into two categories, one is the arbitrary dissolution cause; the other is the compulsory dissolution cause. ^[1]

Whether the dissolution leads to the termination of the legal personality of the company differs from country to country. The United Kingdom implements the system of "calculate first and then dissolve". Dissolution means the termination of the corporate personality of the company. The same is true of the country. This dissolution does not lead to the destruction of the corporate personality, but only to the

I. Establishment of liquidation team

When a company is dissolved, it shall be liquidated according to law. According to the "Company Law", a company shall set up a liquidation group within 15 days from the date of the occurrence of the dissolution cause. According to the judicial interpretation of the Supreme People's Court, the people's court shall accept the creditor's application for the liquidation team to be designated by the people's court in one of the following circumstances:

(1) If the company is overdue, a liquidation group is not established for liquidation;

(2) Although the liquidation group was established, the liquidation was intentionally delayed;

(3) Illegal liquidation may seriously damage the interests of creditors or shareholders.

Under the above circumstances, but the creditor has not filed an application for liquidation, and the company's shareholders apply for a liquidation team designated by the people's court to liquidate the company, the people's court shall accept it.

The liquidation group of a limited liability company consists of shareholders, and the liquidation group of a joint stock limited company consists of directors or persons determined by the shareholders' meeting. When a people's court accepts a company liquidation case, it shall promptly designate relevant personnel to form a liquidation group. The members of the liquidation team may be generated from the following persons or institutions:

(1) the company's shareholders, directors, supervisors and senior management personnel;

(2) Lawyers, accounting firms, bankruptcy clearing firms and other social intermediaries established in accordance with law;

(3) People with relevant professional knowledge and qualifications for practice in social intermediary institutions such as law firms, accounting firms, bankruptcy and settlement firms established in accordance with law.

Powers of the liquidation team

According to the "Company Law", the liquidation team exercises the following powers during the liquidation period:

(1) Clean up company property, prepare balance sheet and property list separately;

(2) notify and announce creditors;

(3) Handling the outstanding business of the company related to liquidation;

(4) Settle the taxes owed and the taxes generated during the settlement process;

(5) liquidation of claims and debts;

(6) Dealing with the remaining assets of the company after paying off its debts;

(7) Participate in civil litigation activities on behalf of the company.

The liquidation team performs a series of civil activities on behalf of the company during the liquidation of the company, and has full power to handle the company's economic affairs and civil litigation activities. According to the "Company Law", the members of the liquidation team shall be loyal to their duties and perform their liquidation obligations in accordance with the law. The members of the liquidation team shall not use their power to accept bribes or other illegal income, and shall not invade company property. Any member of the liquidation team who causes losses to the company or creditors due to intentional or gross negligence shall be liable for compensation.

Third, the liquidation work procedures

The liquidation process is generally as follows:

Registration of claims

The liquidation team shall notify the creditors within 10 days from the date of establishment, and shall make an announcement in the newspaper within 60 days. Creditors shall report their claims to the liquidation group within 30 days from the date of receipt of the notice, and within 45 days from the date of the announcement without notice. If the creditors fail to declare their claims within the prescribed time limit and make additional declarations before the end of the company's liquidation procedures, the liquidation team shall register. The creditors' supplementary declared claims may be settled in accordance with law among the company's unallocated property. The end of the company's liquidation process means that the liquidation report has been confirmed by the shareholders 'meeting, shareholders' meeting or the people's court.

The liquidation team failed to perform the notification and announcement obligations in accordance with the preceding paragraph, resulting in creditors failing to declare their claims in a timely manner without being liquidated, and the members of the liquidation team were liable for compensation for the losses caused thereby.

When claiming creditor's rights, the creditor shall explain the relevant matters of the creditor's right and provide proof materials. The liquidation team shall register the creditor's rights. During the period of declaration of creditor's rights, the liquidation team shall not pay the creditors.

2. Clean up company property and formulate a liquidation plan

The liquidation team shall clean up the company's assets, compile a balance sheet and property inventory, and formulate a liquidation plan. The liquidation plan shall be submitted to the shareholders 'meeting, the shareholders' meeting or the people's court for confirmation. The liquidation team's implementation of an unconfirmed liquidation plan causes losses to the company or its creditors, and the company, shareholders or creditors have the right to require the liquidation team's personnel to bear compensation liability.

When the company is dissolved, the capital contributions that have not been paid by shareholders shall be regarded as liquidation property. Shareholders' outstanding contributions include contributions due and payable at maturity and contributions that have not yet expired in accordance with Articles 26 and 81 of the Company Law.

After the liquidation team has cleared the company's property, compiled the balance sheet and property inventory, and finds that the company's property is insufficient to pay off its debts, it shall apply to the people's court to declare bankruptcy according to law. When the liquidation group designated by the people's court clears the company's property, compiles the balance sheet and financial list, if it finds that the company's property is insufficient to pay off its debts, it can negotiate with the creditors to make a debt settlement plan. If the debt settlement plan is confirmed by all the creditors and does not harm the interests of other interested parties, the people's court may approve it according to the application of the liquidation team.

3. Debt settlement

The company's assets are paid separately for liquidation expenses, employees' salaries, social insurance expenses and statutory compensation, paid the tax owed, and the remaining assets after the company's debts are paid off. Some shares are distributed in proportion. During the liquidation period, the company survived, but it was not allowed to carry out business activities unrelated to liquidation. The company's property shall not be distributed to shareholders before being paid off in accordance with the above provisions.

4.Announcement of company termination

After the company's liquidation is completed, the liquidation team shall prepare a liquidation report, report it to the shareholders 'meeting, the shareholders' meeting, or the people's court for confirmation, and submit it to the company registration authority to apply for cancellation of the company registration and announce the company's termination.

The company registered for cancellation without liquidation, which resulted in the company being unable to perform liquidation. The creditors have the right to demand the shareholders of the limited liability company, the directors and controlling shareholders of the company limited by shares, and the company's actual controller to bear the company's debts.