In life, it can often be the case that you no longer want to be a business owner. As an owner, you may want to close down your business. In such cases, you should familiarize yourself with the liquidation and the rules for selling the company. Because maybe you have to consider many aspects that you didn’t even think about at first.
In this article, we’ll cover the topic of what to look out for if you sell your business and what if you might “get out of business,” that is, wind up.
When can the liquidation procedure or the sale of the company be considered?
When members get rid of their company for one reason or another, the option to “leave the company or get rid of the company” may arise. It could also be because the mood for the business has fallen short, or the owners are diverting their attention in a different direction, they may be quarreling, or the business is simply not bringing enough to the kitchen to continue.
Why do so many people choose to sell the company?
In many cases, the owners of the companies decide to sell the company rather than to go through the liquidation process. Given that it may seem easier to sell a company than to liquidate it. Although there is a simplified form of winding-up proceedings that can be relatively quick and “wallet-friendly,” not everyone can take advantage of this option. A final settlement can take several months – even years – and of course we have to reckon with costs. As a result, in many cases, in everyday life, business owners often choose to sell their business to someone (i.e., sell their shares). The pros and cons of the liquidation process and its alternatives are summarized below in a nutshell.
First of all, do we clarify what liquidation means?
In the case of dissolution without a legal successor, mainly by business entities but other non-natural persons, one of the methods of dissolution is the winding-up proceedings, which are possible if the company (or other entity) is not insolvent. In the event of termination by succession, the assets, rights and obligations of the company shall pass to the successor company or companies. The aim of the regulatory system related to the dissolution of companies as a whole is to settle the status, property and economic relations of companies in one way or another in the event of their dissolution and transformation.
What are the benefits?
A secure solution, the company will be wound up permanently, with a simplified procedure it can be a quick and cost-effective option.
What are the disadvantages?
There are definitely costs involved and it is only possible to initiate proceedings in the case of a solvent company. In any case, it involves more serious administration, in the case of a normal procedure the process is slower and possibly tax inspections are expected.
What is simplified liquidation?
There is a general and simplified way of winding up. Simplified is of course a much more affordable option, but not everyone can take advantage of it. Previously, only a limited partnership, a general partnership and a sole proprietorship could decide on a simplified liquidation. The new regulations 2018. From 1 July, the applicability of simplified winding-up has been significantly extended, as either limited liability companies or public limited companies can opt for the simplified winding-up form if certain conditions are met.
A simplified procedure may be appropriate if the company is not subject to an audit and the winding-up is expected to be completed within 150 days.
This is possible if the company’s accounts are in order, there are no debts, difficult-to-settle member loans or they can be settled from the company’s assets, any remaining live contracts can be terminated within this time, and there is no threat of dispute. Simplified liquidation must be reported to the tax authority instead of the court of registration. This option means a quick “closing” of the company’s operations, as a rule, within six months.
If we want to liquidate the company, in practice, what is the alternative to liquidation?
In addition to selling, it may be advisable to merge a company into another company. Especially if the company has accumulated significant assets and members do not want to give it up and withdraw it as dividends. The acquiring company may use the assets for its operation. Merger can also be an alternative for an insolvent company. However, the benefits are slow and costly.
Sale of the company or sale of business shares
In addition to merging, selling a company can also be an alternative. Here, however, it should be clarified that by sale we actually mean the transfer and sale of business shares. This may seem like the cheapest and fastest solution. With the sale, the owner can get away with the lengthy and costly procedure associated with liquidating the company.
However, selling a business can be a risk if the wrong person buys the business and uses it for unwanted transactions in the future.
In principle, from the date of the sale, the former owner and chief executive officer (executive) will no longer be responsible for the affairs of the company. This sounds good in itself, but it is worth choosing a buyer carefully. In the event of irregularities or more serious defects after the sale, the tax authority or other bodies may take over the former managing director and other members, who must be able to prove that the problems in question and the specific problems arose after the transfer, and this is not always an easy task.
An alternative to liquidation can be to sell the company, but to avoid problems it is worth choosing a buyer carefully
In the case of a sale, a tax point may also arise if the owner achieves an “exchange rate gain” on the transaction (ie he sells his share for more than nominal value – eg: sells a HUF 3 million share for HUF 5 million). Basically, liquidation is preferable to selling, as all transactions there are closed and at the end of the process, the court of registration cancels the business, so there is no need to fear future events.
Which option should we choose?
It is definitely advisable to consult an expert lawyer for a well-founded decision. The right choice is worth considering not only from the point of view of company law, but also from the point of view of tax law, and each case may involve different risks.
Detailed rules on liquidation can be found in the Bankruptcy Act .
Decide carefully when deciding whether to liquidate or sell your business …