General vs. simplified liquidation: what is the difference and which one to choose?

Simplified liquidation involves removing a company from the USRLE based on a decision by its participants to cease operations (Article 21.3 of Federal Law No. 129-FZ of August 8, 2001). This "closing" option is available only to small and medium-sized enterprises (legal entities and individual entrepreneurs included in the special registry based on their income and headcount) and provided that the following conditions are met simultaneously:

1. The company is not a VAT payer / is exempt from calculating and paying VAT;
2. The Russian Federal Tax Service has no record of outstanding settlements with creditors;
3. The USRLE does not contain a note regarding the inaccuracy of information;
4. The company has no outstanding obligations to pay taxes, fees, or other mandatory payments;
5. The company does not own any real estate or vehicles;
6. The company is not in the process of liquidation, reorganization, or removal from the USRLE by decision of the Russian Federal Tax Service;
7. No bankruptcy proceedings have been initiated against the company.

For this procedure, it is necessary to submit an application using form R19001 and wait for the expiration of the period for interested parties to file objections (3 months from the date of publication of the decision on the upcoming removal), after which the company will be removed from the USRLE. All interested parties can learn about the planned cessation of the company's activities through the Russian Federal Tax Service's publication of this information in the "Bulletin of State Registration" journal.

From a practical standpoint, simplified liquidation is advisable when operations have effectively ceased, there are no assets, and the company's corporate and tax history is highly unlikely to raise questions from the Russian Federal Tax Service during an audit. The main advantage of this option is the relatively short timeframe: 3 months and 5 business days, as well as minimal costs, which may not even arise if documents are submitted directly to the Russian Federal Tax Service or filed electronically.

Note that the application using form R19001 must be signed by all company participants; that is, the decision must be unanimous. If one or more participants are located outside the Russian Federation, signing such an application can be difficult, which means this method of "closing" a business is not always feasible.

Standard liquidation is the most transparent way to cease a company's operations, as it involves identifying creditors and settling accounts with them. This option is preferred if the conditions for simplified liquidation are not met or if there are other circumstances that make simplified liquidation impossible.

This method of ceasing operations is carried out through a sequential procedure involving a liquidator or a liquidation commission. Many stages of the procedure may require interaction with a notary. To implement the procedure, the following steps must be taken:

1. Adopt a decision on liquidation;
2. Appoint a liquidator or a liquidation commission;
3. Submit an application using form R15016 to the Russian Federal Tax Service, which is signed by the company's director and submitted to the Russian Federal Tax Service at several stages of the procedure: upon the decision to liquidate, upon the preparation of the interim liquidation balance sheet, and upon the completion of the liquidation procedure;
4. Publish notices in the Unified Federal Register of Legally Significant Information and the Vestnik Gosudarstvennoy Registratsii journal;
5. Prepare interim and final liquidation balance sheets.

As a result, the procedure typically takes between 3 and 12 months, with mandatory costs starting from 30,000 rubles, depending on the number of creditors, the volume of corporate work, and other circumstances.

Simplified liquidation is a fast and cost-effective way to terminate a company's operations. It is only possible if the legal entity meets all statutory criteria simultaneously and is effective when the company has no debts, no inaccuracies in the Unified State Register of Legal Entities (EGRUL), and no other factors that might raise questions from the Federal Tax Service of Russia. It also requires that all participants are able to sign the application before a notary or at the Federal Tax Service, or, if they are outside the Russian Federation, have their signature certified at a consulate.

Standard liquidation is a longer and more costly procedure, but it is the correct way to wind down a company that has creditors, assets, or other obligations. Therefore, the choice between the two mechanisms should be based not only on the desired speed of closing the business but also on the actual state of the company's accounts, assets, and corporate documentation.

Risks of simplified liquidation:

• refusal to remove the company from the Unified State Register of Legal Entities if even one of the mandatory legal conditions is not met;
• inability to complete the procedure due to objections filed by creditors within 3 months of the publication of the notice of impending removal;
• loss of time and financial resources resulting from choosing the simplified procedure when circumstances objectively require standard liquidation.

Risks of standard liquidation:

• initiation of a tax audit or an in-depth analysis of the company's activities during the liquidation process;
• discovery of outstanding settlements with creditors, additional tax liabilities, penalties, or fines;
• refusal to complete the liquidation due to missed deadlines, improper filing of Form R15016 applications, or unresolved obligations;
• transformation of the liquidation procedure into bankruptcy in the event of significant debt, potentially leading to liability for controlling persons.

The C Cases Team recommends:

1. conduct an express audit of the company before starting the procedure: check for outstanding debts to the budget and creditors, the status of a small or medium-sized enterprise, Unified State Register of Legal Entities (EGRUL) records, and the presence of real estate or vehicles on the balance sheet;
2. choose simplified liquidation only if all conditions established by law are met and there is no risk of objections from creditors;
3. use the general liquidation procedure if the company has disputed obligations, assets, or expects claims from counterparties;
4. plan timelines and budget in advance: simplified liquidation is formally cheaper and faster, but if discrepancies are identified, it may result in a rejection and loss of time;
5. clear any records of inaccuracy, pay off mandatory obligations, and settle relations with creditors before submitting documents for liquidation.

If you have decided to cease your company's operations and are choosing the best method, the C Cases team is ready to assess your situation and offer the safest possible option for "closing" your business.

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Sources

1. Federal Law No. 129-FZ of August 8, 2001, "On State Registration of Legal Entities and Individual Entrepreneurs";
2. Federal Law No. 14-FZ of February 8, 1998, "On Limited Liability Companies";
3. Federal Law No. 208-FZ of December 26, 1995, "On Joint-Stock Companies."