Dissolution (of a company)

The dissolution of a company consists in the first stage of its legal disappearance and the termination of the relations it had with third parties.

The dissolution of a company is the first stage of its closure or final extinction. Once the dissolution is declared, there are three ways to carry it out: transfer of ownership, liquidationor bankruptcy .

In the case of Spain, the dissolution is a formal procedure that must comply with certain stages specified in the Capital Companies Law and that must be registered in the Mercantile Registry (in the “Official Gazette of the Mercantile Registry” (BORME)).

Ways for the dissolution of the company

There are three ways by which companies can specify their dissolution:

  • Transfer of ownership: purchase and sale of the company
  • Liquidation of the company: this is a process where administrators leave their positions and power of attorney to hand them over to the liquidators who will be responsible for distributing the remaining share capital after paying debts to third parties. Then comes the final closing of the company (extension)
  • Contest of creditors: when it has not been possible to pay all creditors of the company. It can be requested by creditors or the same company.

Causes of dissolution

The causes can be diverse but can be encompassed in a few situations. According to the Law in Spain, the dissolution may occur for any of the following reasons:

  • When the company has not carried out activities that constitute its corporate purpose for at least one year (it has not provided any service)
  • The purpose for which the company was created has concluded
  • It is not possible to achieve the social purpose with which the company was proposed
  • There is a paralysis of the social bodies so that it is impossible for the company to function
  • Losses that reduce net worthto an amount less than half of the share capital
  • Reduction of the share capitalbelow the legal minimum, which is not a consequence of compliance with a law.
  • Because the nominal value of the non-voting sharesor the non-voting shares exceeds half of the paid-up share capital and the proportion is not restored within two years
  • For any other cause established in the statutes

Other causes cannot be claimed.

Dissolution Procedure

If any of the grounds for dissolution is met, the administrators have two months to comply with the obligation to convene a General Meeting to agree on the procedure.

If the Board is not convened or there is no agreement, any interested party may request the disappointment by going to the Commercial Judge.

It is worth mentioning that if the administrators do not fulfill their obligation to summon the Board, the Law establishes that they will respond jointly and severally to the debts of the company. That is, they must make their assets available for payment to creditors.

Once the dissolution has begun, it goes to one of the three ways mentioned above.

Is the dissolution process reversible?

In some cases it is possible to reverse the procedure but as long as:

  • the cause of dissolution has been extinguished
  • the equity is greater than the share capital
  • The settlement process has not started
  • there is an agreement between the partners

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