Compulsory liquidation of a legal entity by tax authority and it’s consequences ?‍⚖️

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Commercial and entrepreneurial organizations often face the need to liquidate a legal entity for one reason or another, including by decision of the tax authority. In most cases, we are talking about the voluntary termination of the company’s work by the decision of its founders or management. The decision to abolish a business can be made because it has achieved its goal or the deadline for which it was created has come.

However, in addition to voluntary suspension of activity, there is also a compulsory liquidation of a legal entity by a tax authority or local government. In fact, such a procedure requires a court decision, which is preceded by a lawsuit from one of the state authorities.

Grounds for liquidation of a legal entity by a tax authority

The reasons for the compulsory liquidation of legal entities by the tax authority are specified in Article 61 of the Civil Code of the Russian Federation. This is the main document regulating the issue of termination of commercial activity.

So, a court decision can be made based on an appeal from the tax service or local government. The reasons for the termination of the LLC’s activities may be different, the law provides for such options:

• violation of the law when registering an organization, if it is impossible to eliminate the violation;
• the organization carries out its activities without a license or work permit;
• the business conducts prohibited activities or has repeatedly violated the law.

Recently, the most common reason for the forced liquidation of a legal entity by the tax authority is an unreliable address specified during registration. To solve this problem, the company is required to submit information about the current address to the tax authority, and if this does not happen, the authorities may demand the abolition of the business for violating the law.

State authorities have the right to initiate a check of the location of of an LLC at the address specified in the Unified State Register of Legal Entities (EGRUL). If the accuracy of the information is not confirmed, the business is sent a request that it provide truthful information about its own location.

The period within which the LLC must provide information about a reliable address is 30 days. If the violation has not been eliminated after a month, information about the unreliability of organization’s address will be stated in the Unified State Register of Legal Entities. After that, the authorities apply to the court with a lawsuit for the compulsory liquidation of a legal entity by a decision of the tax authority.

In addition, in accordance with the established judicial practice, in the event of a court decision, the costs of the abolition of the LLC are borne by the founder. In situations where the court obliges the founder to officially cease the existence of the business, but he does not fulfill the requirements within the prescribed period, a liquidator is appointed.

Another common reason for the liquidation of a legal entity by the tax authority may be the discrepancy between the net assets of an LLC and the minimum size of the authorized capital. So, if the amount of the company’s capital for two or more years is greater than net assets, and the organization does not make a decision on voluntary termination of activity, the authorities have the right to file a lawsuit.

At the same time, judicial practice does not consider such violations as an unconditional basis for the liquidation of a legal entity by a tax authority. The founder can take measures to improve the health of the company, correct the situation, and then the state authorities will not have any claims against the LLC.

Procedure for compulsory liquidation of a legal entity by a tax authority

• The registering authority enters into the register information about the abolition of the company.
• The authorities appoint a liquidation commission, which may include founders and business owners. After that, the right to manage all the affairs of the organization passes to the commission.
• Information about the procedure is published in the official print edition indicating the name of the company, the date of the decision to terminate the activity, TIN.
• Employment relations with employees are terminated..
• The company is separated from other organizations.
• Make up and approve the final balance.
• A list of documents confirming the legal procedure for the forced shutdown of the business and a receipt for payment of the state fee are submitted to the authorized structure.

Russian legislation provides for the responsibility of the founders for non-implementation of court decisions. So, when the owners try to evade the execution of the court decision, specially appointed liquidators are taken to bring it into effect.

In such organizational and legal forms of legal entities as a limited liability company (LLC) and a joint-stock company (JSC), the founders are not liable for the obligations of the organization. Therefore, in case of insufficient property to repay debts to creditors or the budget, they lose only the value of the contributions made to the authorized capital of the organization, but they are not responsible for its debts with personal property. The risks are not as high as in situations where personal finances and property of business founders are seized to repay debts.

Liquidation of a legal entity at the initiative of the tax authority is possible if the organization does not carry out commercial activities for a long time. The termination of the company’s operation also occurs in the case of illegal business.

Mandatory authorization of an enterprise may be canceled in the state register of legal entities. For tax control authorities, this is more of a power than an obligation.

The liquidation of a legal entity by the tax authority is carried out in the following situations:

• During the last year (before the final decision was made), the organization did not provide accounting documentation.
• No transactions were carried out on the company’s financial account during the calendar year.
• The company does not have enough material resources for the costs required for voluntary closure.
• The founders do not have the opportunity to repay the costs in the process of voluntary termination of the company’s activities.
• The state register of legal entities contains false information about the company.
• Commercial activity continues despite repeated disregard of legal prescriptions (for example, there is no license, the rights of employees are violated).

Liquidation of an inactive company by a decision of the tax authority

If the commercial activity in the company is not conducted for a period of more than 12 calendar months, the liquidation of the legal entity is carried out by the decision of the tax authority. But if there is a debt obligation, refusal to repay it will entail subsidiary liability.

Moreover, the persons who created the organization, as well as its direct managers, may be subject to sanctions measures. For at least 3 years, they will not have the right to found a new company or take a managerial position in another company.

Forced closure of a legal entity due to lack of activity

The conclusion about the absence of commercial activity at the enterprise is made when analyzing the accounting documentation. Thus, if the functioning of the company is not carried out, the necessary documents are not provided and the use of the bank account is not recorded during the calendar year, the FTS (Federal Tax Service) has grounds for closing it.

The Tax Service submits a request to a banking institution, after which a thorough analysis of the information received is carried out. The most “quiet” companies are included in a special list and are subject to inspections.

After what period of time the tax authority liquidates the LLC

The time of the compulsory liquidation of the company depends entirely on the grounds of this decision, the existence of material debts, the legality of business. The final termination of functioning of company implies the following actions:

• An entry is made about the planned liquidation of the LLC.
• Within 3 days, information about the planned liquidation of the LLC is published in the specialized media “Bulletin of State Registration”.
• Within at least 3 months, other individuals and legal entities may demand repayment of debt obligations. If the counterparties have no claims, the specified company will be removed from the unified state register.

Completion of the company’s activities in the IFTS No. 46

The termination of the company’s activities is a procedure that has a legitimate justification. If doing business is not possible, there is no need to expect the appointment of penalty payments and sanctions measures.

The term of liquidation of LLC by the tax authority

The process is characterized by long duration and complexity, depending on the circumstances. It depends on the period required to decide on the closure of the company, as well as on the inspection held by the tax service.

This includes the duration of court proceedings, informing borrowers, preparing the balance sheet, providing other necessary documentation, bidding.

Compulsory liquidation of a legal entity

Compulsory liquidation of a legal entity by a tax authority is possible after filing a claim with the court. After the decision made by the Court, the founders of the company are obliged to urgently terminate its activities.

VALEN company will help your organization to avoid lawsuits from government agencies, as well as to prevent serious consequences of liquidation of a legal entity by the decision of the tax service, if it has already become a fact. We will take care of the competent and correct provision of the necessary information in the Unified State Register of Legal Entities, as well as successfully cope with tax audits.

You can contact our lawyers for consultation by any of the available communication methods. We also invite you to the VALEN office by appointment: +7 (495) 7-888-096!

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