When any businesses can no longer afford to operate, liquidation of companies is a formal process that is done by a registered business to ensure it meets its obligations to shareholders and other stakeholders (e.g. debtors, employees, Government entities).

In this guide, we take a closer look at liquidation to find out what it entails and how to proceed with the process.

What You Need to Know About Liquidation of Companies

What exactly is the liquidation of companies?

In essence, business liquidation is the process of ending business and distributing the various assets from the business to claimants. Businesses that have liquidated are then able to claim for bankruptcy.

It can also involve the selling or auctioning of stock – often at greatly reduced prices. Some of the most important things to know about liquidating a business include the following:

Why liquidate?

Registered companies that are in severe financial difficulty can decide to make this move in order to claim for bankruptcy.

Debts can be settled using the money made from selling the business and stakeholders can also be paid.

This process offers a way for businesses to settle debts without owners and leaders being personally responsible for costs.

Who requires liquidation in UAE?

Any registered entity can apply for liquidation in UAE, including limited liability companies, free zone companies, and offshore companies throughout any part of the UAE.

Entrepreneurs and sole proprietors may not apply for liquidation, as their businesses are not registered entities.

What do you need for a smooth liquidation? 

Proper liquidation is essential to ensure that the process is done efficiently and legally.

There is a set number of steps entailed, ranging from the submission of numerous documents to an official notice period.

In the UAE, the process is strictly governed by Legislation. For example, LLC companies are subject to Federal Law No. 2 of 2015 on commercial company’s law, articles from 306 to 326. This entails 3 steps:

1. Notice of Company’s Dissolution & Appointment of a Liquidator
2. Cancellation of license(s) & cancellation from the Commercial Registration
3. Cancellation of Tax Registration with the Federal tax Authority (if applicable)

During this period, companies need to obtain bank closure letters, clearance letters from landlords, utility providers, labour department, water and electricity departments, and other bodies.

Then a liquidation report is submitted.

Once all documentation has been reviewed and the final payment to the Department of Economic Development or relevant Authority made, the final certificate called License Cancellation Certificate is issued.

Needless to say, accounting plays a crucial role in the liquidation process.

Ensuring that books have been carefully balanced and audits done frequently is the safest way to ensure that the liquidation goes according to plan.

If auditing requirements are not met and financial errors or discrepancies arise, it can make liquidation become far more complicated.

It is also essential to get expert help throughout liquidation to ensure that the process is made as stress-free as possible.

Documents need to be gathered and processed carefully to ensure regulatory compliance at every step of the way.

To help you navigate the auditing and FTA requirements needed for liquidation, Simply Solved can issue mandatory liquidators’ report.

We provide a cost-effective, highly efficient service that gives you full support during liquidation.

Contact us today to speak to our helpful advisors about the liquidation of companies.