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What is the difference between dissolution and liquidation of a company?

The dissolution and liquidation of a business are often the subject of great confusion due to their similarities. However, these two concepts have notable differences. What do the notions of dissolution and liquidation of a company mean? What are the differences between them and how does each of them work? Should we prefer dissolution to liquidation?

Definitions of dissolution and liquidation of a company

The dissolution of a company consists of the early cessation of its activities. When the procedure for dissolving a company is engaged, it leads to its deletion from the registers administrative. It is often decided by mutual agreement by the partners or ordered by the judge.

Liquidation is the procedure that strips the company of all its essence. Concretely, this involves selling the company’s assets in order to repay the debts contracted. It marks the definitive disappearance of the company according to the laws and rules in force. Liquidation only takes place after a dissolution carried out in advance. Moreover, most dissolved companies begin the liquidation process without delay. Only the dissolution of a Single-Person Limited Liability Company (EURL) may not be immediately followed by liquidation.

liquidation of a company

The main differences between dissolution and liquidation

The main difference noted between dissolution and liquidation is that the first absolutely precedes the second. Other divergent points also concern the actors of each approach and the procedures themselves.

Specific actors for each procedure

In dissolution, it is, in principle, the partners who intervene. They agree to interrupt the initial agreement before its end. We then speak of amicable dissolution. If the company faces real financial complications or absolute disagreement between partners, it is the judge who takes over. The dissolution is then carried out following the decision of the judge of the commercial court or the judicial court. The procedure, in this case, is called judicial dissolution. The partners are required to respect the judge’s decision from the dissolution until the liquidation of the company.

As for the liquidation, it is implemented by a person named the liquidator. This is expressly designated by the partners or the judge of the commercial court depending on whether the dissolution is amicable or judicial. His appointment is made through the act which establishes the dissolution of the company. For an amicable dissolution, the liquidator can be the manager of the company, a partner or a person outside the company. As for judicial dissolution, the liquidator is also supported by a judge-commissioner, an employee representative, an expert and a representative of the professional order if necessary.

The separate liquidation and dissolution procedures

Leading to the disappearance of the company, dissolution is of capital importance. For this, the dissolution decision must be taken at an Extraordinary General Meeting. During this meeting, a vote of a qualified majority of the partners is organized, in order to decide on the dissolution of the company.

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Concerning the liquidation of a company, its implementation follows a simple procedure. In this case, it is an Ordinary General Meeting which meets to vote on the closure of the liquidation process.

Which procedure is best for your business?

Dissolution is the first step to follow if you wish to end the existence of your business. Once this phase has been completed, amicable or judicial liquidation may follow.

The ideal is to proceed with an amicable dissolution. For it to be successful, such a decision must be justified by valid reasons:

  • the expiration of your company,
  • the termination of the corporate purpose of the company,
  • disagreement between partners,
  • the existence of a statutory clause for amicable dissolution.

Amicable dissolution is then suitable if you are able to settle all your debts.

In the event that your company is in a situation of bankruptcy (cessation of debt payments), the manager has the duty to establish a declaration of cessation of payments to be addressed to the commercial court. This act will then make it possible to start a judicial dissolution procedure, in order to better organize the disappearance of your business while ensuring the reimbursement of creditors.

How to proceed with the dissolution or liquidation of your business?

The dissolution and liquidation of a company follows a process involving administrative or legal procedures. The assembly of certain parts is also required. Both procedures require the filing of files at the commercial court registry or at the judicial court of the place where the activities of the company’s main headquarters take place.

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The procedure for dissolving a company

The dissolution of a company begins with the deliberation between partners on the decision to dissolve. Next comes the establishment ofa report of dissolution. The latter must be registered by the Corporate Tax Service (SIE) to which your company is linked.

You will then need to go to the Business Formalities Center or on the website to complete the M2 form. You will also need to add a certified copy of the National Identity Card and a declaration of non-conviction from the liquidator to constitute the file to be submitted to the registry. As soon as this is done, you must publish the dissolution in a legal notice newspaper. The file formed must be filed with the court registry with proof of publication.

In the case of judicial dissolution, a request for dissolution must be sent to the court judge accompanied by the file.

The process of winding up a business

Liquidation follows dissolution and begins with the drafting of a liquidation report which will be registered with the SIE. As for dissolution, you will need to complete form M4 relating to deregistration of companies and add it to the file. Here, other additional documents are required:

  • the company’s liquidation accounts,
  • the company’s balance sheet,
  • the income statement,
  • Annexes.

Finally, you must also publish the liquidation in a legal notice newspaper. This step completed, you can now submit the completed file to the registry of the commercial court or the judicial court, supporting proof of publication.

If it is an amicable liquidation, the liquidator must then proceed to inventory of company assets, recovery of debts and sharing of remaining assets.

When there is a question of judicial liquidation, the liquidator designated by the judge will carry out the same operations, but following the judge’s instructions.

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