This is not a topic many would like to think about. No one wants to entertain the idea that they might have to close their business. But the truth is, the vast majority of startups fail within the first two years. If you ever find yourself in a position where you have to close your business down (and we hope you don’t!) then this post is here to help you. We will provide you with some of the important information you need to know. Before you make any decision to close your business, we highly recommend you obtain professional advice from a lawyer and accountant.
How to close your business
There are two ways to close your business/company. You close your business through either deregistration or liquidation. Which way your business is closed depends on the circumstances the business finds itself in. In the case of deregistration the implication is that a company can choose to deregister and is still able to pay its debts. With liquidation, it is implied that a business is not able to pay its debts and that the business will cease to operate, generally because of financial problems.
How to close your business: deregistration
If you wish to deregister your business you need to write to the Companies and Intellectual Property Commission (CIPC) confirming that your company or close corporation is not carrying on business or is dormant; has no assets or there are inadequate assets for the business to be liquidated; and this must be signed by each active member of the business. Your tax number must be included if you have one. The relevant supporting information must be attached to the letter. For more detailed coverage on what is required, you can visit the CIPC website here. Once your business is deregistered, you should visit your nearest SARS branch to make sure the business is deregistered for all the various types of tax.
The result of this process is that your company is no longer registered and has no legal standing anymore.
How to close your business: liquidation
Liquidation implies the business’s inability to pay its debts. Liquidation can be compulsory or voluntary. A compulsory liquidation happens when your creditors apply to court to have your business liquidated and the court grants the application. In this case, you have no choice but to accept the closing of your business. For voluntary liquidation, you need to apply to court for the liquidation of your own business.
The process of liquidation involves selling the company’s assets, paying off the creditors, issuing any remaining assets (if any) to the parent company, then closing the company. When a company is placed under liquidation, it is placed under the control of a liquidator who then carries out the process of liquidation. You need to disclose everything to the liquidator. Once in the process of liquidation, do not try to deal with your company’s creditors yourself, leave that to your attorneys.
If you feel you are in a space where you might need to close your business, we highly recommend that you seek legal advice regarding your options before making any decision. Because this is such a difficult decision to make, you do not want to make the wrong choices! If you require any assistance regarding something written in this post, please do not hesitate to contact us at [email protected].