When a company's owners decide to "close" it, the question almost immediately arises of how to do it — quickly and cheaply, or more slowly but with greater legal "cleanliness" and predictability. In practice, the choice usually comes down to 2 options: going through the standard liquidation procedure or trying to close the company in a simplified way by having it struck off the Unified State Register of Legal Entities following its members' decision to cease operations.

This choice affects not only the timing and costs, which are much higher for a standard liquidation than for a simplified one, but also the risks the company's former owners may face in future: relationships with creditors and the Federal Tax Service that have not been properly settled may later turn into personal liability for the members and the director. In other words, the way a company is wound up directly affects consequences that may surface some time later.

Simplified liquidation

Simplified liquidation means striking a company off the register following its members' decision to cease operations (Article 21.3 of Federal Law No. 129-FZ of 08.08.2001). This way of "closing" a company is available only to small and medium-sized businesses (legal entities and sole proprietors included in a special register based on their revenue and headcount) and only if all of the following conditions are met:

1. The company is not a VAT payer or is exempt from calculating and paying VAT;
2. The Federal Tax Service has no information about outstanding settlements with creditors;
3. The register contains no note that information about the company is inaccurate;
4. The company has no unpaid taxes, duties or other mandatory payments;
5. The company does not own real estate or vehicles;
6. The company is not in the process of liquidation, reorganisation or striking-off by decision of the Federal Tax Service;
7. No bankruptcy proceedings have been initiated against the company.

For this procedure, an application on form R19001 must be filed, the period for interested parties to object (3 months from the publication of the decision on the forthcoming striking-off) must expire, and then the company is struck off. All interested parties can learn of the planned closure from the Federal Tax Service's notice in the State Registration Bulletin.

In practical terms, simplified liquidation makes sense when the business has in fact ceased, there are no assets and the company's corporate and tax history is very unlikely to raise questions from the Federal Tax Service. The main advantages of this option are a relatively short timeframe — 3 months and 5 business days — and minimal costs, which may be zero if the documents are filed directly with the Federal Tax Service or electronically.

Note that the R19001 application must be signed by all the company's members, i.e. the decision must be unanimous. If one or more members are outside Russia, signing such an application is difficult, so this way of "closing" a business is not always feasible.

Standard liquidation

Standard liquidation is the most transparent way of winding up a company, as it involves identifying creditors and settling with them. This is the preferred option if the conditions for simplified liquidation are not met or other circumstances make it impossible.

This method is carried out through a sequential procedure involving a liquidator or liquidation commission. Many stages may involve a notary. The procedure requires the following steps:

1. Adopting a decision to liquidate;
2. Appointing a liquidator or liquidation commission;
3. Filing an application on form R15016 with the Federal Tax Service, signed by the company's director and filed at several stages: when the decision to liquidate is made, when the interim liquidation balance sheet is drawn up and when the liquidation is completed;
4. Publishing notices in the Unified Federal Register of Information on the Activities of Legal Entities and in the State Registration Bulletin;
5. Drawing up interim and final liquidation balance sheets.

As a result, the procedure usually takes 3 to 12 months, and mandatory costs start from RUB 30,000 depending on the number of creditors, the amount of corporate work and other circumstances.

Conclusion

Simplified liquidation is a fast and economical way of winding up a company. It is possible only if the legal entity meets all the statutory criteria at once, and it works well if the company has no debts, no inaccuracy notes in the register or other factors that could raise questions from the Federal Tax Service, and if all members can sign the application before a notary or at the Federal Tax Service or, if they are abroad, have their signatures certified at a consulate.

Standard liquidation is a longer and more expensive procedure, but it is what allows a company to be wound up properly when it has creditors, assets and other obligations. The choice between the two mechanisms should therefore be based not only on how quickly the owners want to close the business but also on the actual state of the company's settlements, assets and corporate documents.

Possible risks

Risks of simplified liquidation:

• refusal to strike the company off if even one of the mandatory statutory conditions is not met;
• inability to complete the procedure because creditors file objections within 3 months of the publication of the decision on the forthcoming striking-off;
• loss of time and money from choosing the simplified procedure when circumstances objectively require a standard liquidation.

Risks of standard liquidation:

• a tax audit or in-depth analysis of the company's activities being initiated during the liquidation;
• outstanding settlements with creditors, additional tax liabilities, penalties and fines coming to light;
• refusal to complete the liquidation if deadlines or the procedure for filing R15016 applications are breached or if obligations remain unsettled;
• the liquidation turning into a bankruptcy where there is significant debt, followed by liability for the controlling persons.

C Cases recommendations

The C Cases team recommends:

1. carrying out an express audit of the company before starting the procedure: checking for debts to the budget and creditors, SME status, register information and any real estate or vehicles on the balance sheet;
2. choosing simplified liquidation only when all the statutory conditions are met and there is no risk of creditors filing objections;
3. using standard liquidation if the company has disputed obligations or assets, or if claims from counterparties are expected;
4. planning the timing and budget in advance: simplified liquidation is formally cheaper and faster, but if inconsistencies are found it may end in refusal and lost time;
5. removing inaccuracy notes, paying mandatory payments and settling relationships with creditors before filing the liquidation documents.

If you have decided to wind up your company and are choosing the best way to do it, the C Cases team is ready to assess your situation and propose the safest option for "closing" your business.

Sources

1. Federal Law No. 129-FZ of 08.08.2001 "On State Registration of Legal Entities and Individual Entrepreneurs";
2. Federal Law No. 14-FZ of 08.02.1998 "On Limited Liability Companies";
3. Federal Law No. 208-FZ of 26.12.1995 "On Joint-Stock Companies".