How Do You Liquidate a Limited Liability Company? Liquidation of a sp. z o.o. Step by Step

Sometimes, despite the absence of financial problems, the continued existence of a limited liability company (sp. z o.o.) turns out to be unnecessary. This most often happens with special purpose companies, formed to carry out a particular project, once that project has been completed. It also sometimes happens with other types of business, when the shareholders have decided to end the company's activities and the company remains a "dead company".

Although the company no longer conducts any actual business, many obligations still attach to it. Its accounts must be kept, financial statements must be prepared each year, a shareholders' meeting must be convened to approve them, and the statements must then be filed with the Repository of Financial Documents of the National Court Register (KRS). Note that failure to file financial statements is an offence under Article 79(4) of the Accounting Act.

In this article we set out, step by step, how a limited liability company is liquidated, in the hope that this knowledge will help entrepreneurs who need to liquidate an unnecessary company so as not to incur further unnecessary costs.

Summary:

• Liquidation should be carried out when the conditions for declaring bankruptcy have not been met.
• The liquidators are responsible for the conduct of the liquidation. By default they are the last management board members, but the shareholders' meeting may decide otherwise.
• The liquidation of a limited liability company is not a very costly process, but it is formal and lengthy.
• Liquidation is in fact the only way to end the existence of a company if the conditions for declaring bankruptcy have not arisen.

Liquidation or Bankruptcy?

The first stage is a thorough analysis of the company's financial situation. First of all, it must be determined whether the conditions for declaring bankruptcy have arisen. You can read about when bankruptcy must be declared here. In short, if the conditions for declaring bankruptcy have arisen, the company should not be liquidated and a bankruptcy petition should be filed instead, because failure to file such a petition carries civil-law sanctions (a management board member's liability for the company's obligations under Article 299 of the Commercial Companies Code (CCC)) and criminal sanctions (the offence under Article 586 CCC).

Liquidation of a Limited Liability Company Step by Step: Convening the Shareholders' Meeting

The first step in liquidating a limited liability company is to convene a shareholders' meeting, at which a resolution to put the company into liquidation will be adopted. Such a resolution must be adopted in the form of a notarial deed, so an appointment must be made in advance with a notary to record the resolution.

See also: Company Audit (Due Diligence)

The shareholders' meeting may be convened under the formal procedure, that is, by sending registered letters with a notice convening the shareholders' meeting to all shareholders, or under the informal procedure, that is, without sending registered letters but with all shareholders present. At the shareholders' meeting, a resolution must also be adopted on the appointment of liquidators and on the manner in which the liquidators will represent the company in liquidation.

Filing the Application to Open the Liquidation

After the resolution to put the company into liquidation is adopted, an application must be filed with the KRS for entry of the opening of the liquidation. This must be done within 7 days of the date of the resolution. The following documents must be attached to the application:

1. the liquidators' consent to holding the office
2. the liquidators' addresses for service
3. the resolutions adopted at the shareholders' meeting referred to above

Accounting Obligations

After the resolution is adopted, the accounting obligations must also be fulfilled. Financial statements must be prepared for the period from the start of the year to the day preceding the date of the resolution to dissolve the company. The time limit for this is 3 months from the date of the resolution to put the company into liquidation. The statements must be filed with the repository of financial documents, but they do not require approval by the shareholders' meeting. These are the first financial statements prepared for the purposes of the liquidation.

See also: Business Law (in Polish)

In addition to the ordinary financial statements, a balance sheet must be prepared as at the date the liquidation is opened. This is a different document from the ordinary financial statements. The time limit for preparing it is 15 days from the date of the resolution. It is a document listing the company's assets with their disposal value. The opening liquidation balance sheet is not filed with the repository of financial documents, but it must be approved by the shareholders' meeting. In practice, the opening liquidation balance sheet is approved at the annual or the last shareholders' meeting.

Calling on Creditors to File Claims

After the opening of the liquidation is entered in the National Court Register, creditors must be called on, in the Court and Commercial Gazette (Monitor Sądowy i Gospodarczy, MSiG), to file their claims within 3 months of the date of the announcement.

Liquidation Activities

After the three-month period for creditors to file claims has expired, the liquidator must collect the company's receivables, perform its obligations and convert the company's assets into cash, so that the company's assets consist only of cash.

End of the Financial Year in a Limited Liability Company in Liquidation

It is most often not possible to carry out the entire liquidation process within one financial year. The opening of the liquidation does not release the liquidators from the obligations that the management board previously had to perform in connection with the end of the financial year. Financial statements must be prepared for the period from the date the company was put into liquidation to the end of the financial year or, if this is a subsequent year of the liquidation, for the entire financial year, approved by a resolution of the shareholders' meeting and filed with the repository of financial documents.

See also: Legal Services for Companies

Convening the Last Shareholders' Meeting and Accounting Obligations

Once all the liquidation obligations have been performed, that is, after all claims have been paid and the assets converted into cash, the last shareholders' meeting must be convened and the company's remaining assets distributed. The last shareholders' meeting may not be convened for a date earlier than 6 months from the date of the call on creditors to file claims.

Financial statements must also be prepared for the period from the start of the year or from the date the company was put into liquidation, if no year has ended between the opening and the closing of the liquidation, to the day preceding the date of distribution of the company's remaining assets. The day preceding the date of distribution of the funds is the date on which the liquidation ends. The date of distribution of the funds should be the date for which the last shareholders' meeting has been convened. The statements must be approved by the last shareholders' meeting and filed with the repository of financial documents.

The Last Shareholders' Meeting

For the last shareholders' meeting, the relevant documents must be prepared and a number of resolutions adopted. Resolutions must be adopted on:

1. approval of the liquidator's report on activities. This report describes all the acts the liquidator performed during the liquidation.
2. discharge of the liquidator
3. appointment of a custodian of the company's books and documents
4. appointment of a custodian of the personnel files of the company's employees who were employed under an employment contract. If the company has never had employees, there is no need to adopt such a resolution.
5. distribution of the company's remaining assets.

Closing Liquidation Balance Sheet

After the last shareholders' meeting, one more set of financial statements must be prepared as at the day after the distribution of the company's remaining assets. This balance sheet should show that the company has no assets and that the liquidation has been completed successfully. It is an internal document, so it is not subject to approval by the shareholders' meeting and is not filed with the repository of financial documents.

See also: Company Bankruptcy (in Polish)

Application to the KRS to Delete the Company From the Register

The last stage is to file an application with the KRS to delete the company. The following documents must be attached to the application:

1. the liquidator's report on activities
2. the financial statements as at the day preceding the date of distribution of the funds
3. the resolution approving those financial statements
4. proof of publication of the announcement in the MSiG calling on creditors to file claims
5. the liquidator's statement that there are no court, administrative or enforcement proceedings and no claims
6. the liquidator's statement that the liquidation has been completed and the liquidation activities have been performed, that is, the company's current business has been concluded, receivables have been collected, obligations have been performed and the company's assets have been converted into cash
7. the resolution appointing a custodian of the company's books and documents
8. the resolution appointing a custodian of the company's personnel files or, if the company has never employed staff under an employment contract, a statement that the company has no employees

Costs of Liquidating a Limited Liability Company

The procedure for liquidating a limited liability company involves costs. The fee for the application to enter the opening of the liquidation is PLN 350. Calling on creditors to file claims costs approximately PLN 300. The fee for the application to delete the company from the KRS is PLN 400. To this must be added the costs of the notarial deed (this does not apply to companies operating in the S24 online system) and accounting costs.

See also: Legal Services for Businesses

The liquidation of a limited liability company is a fairly time-consuming and formal process. It is, however, in fact the only way to end the existence of a limited liability company.

If you need support in carrying out the liquidation procedure of a limited liability company, you can use the services of a professional law firm specialising in this field. Such support may include comprehensive advice, preparing all documents related to the liquidation procedure, that is, resolutions, notices and statements, and filing applications with the KRS. With the Law Firm's experience and legal knowledge, you can obtain full support so that the process runs as efficiently as possible.