The process by which a French company stops its economic activity and ultimately ceases to exist is called “dissolution-liquidation”.
Both terms are not to be confused as the latter is the consequence of the first. Therefore, the process of dissolution is the first step and it means the end of the economic activity but not that of the legal entity, although it announces its future disappearance. Conversely, the process of liquidation takes place when the company proceeds, after stopping its activity, to sell its actives, pay its debts, and redistribute the remaining capital, if any, among the stakeholders or otherwise respond to the debt according to their responsibility in the company. Once the liquidation is finished, the company effectively ceases its existence.
The liquidation process is different from:
WHO CAN DECIDE TO LIQUIDATE THE COMPANY?
The decision can be made because of different reasons, such as a decrease in the economic activity, a misunderstanding between the members, or because the shareholders no longer wish to continue the activity.
The request to dissolve and ultimately liquidate and radiate an enterprise can be proposed by all the members unanimously, by one of them in case of conflict as long as s/he is not the origin of the conflict, in which case they could face a claim for damages, or a judge in the company cannot face its debts and a recovery in the economic activity doesn’t seem possible.
In case of unanimity between all the members and solvency of the company, the process is known as “liquidation amiable”. However, if it’s requested to a judge by a stakeholder or by the judge himself in case of lacking funds, it is then known as “liquidation judiciaire” because the process is forced by law, and so the phases are different from the “liquidation amiable”.
THE “LIQUIDATION AMIABLE”
As mentioned before, this process is started by the will of the stakeholders or members to stop the company. In other words, it’s the proclamation of its dissolution. After holding the general assembly to declare the decision and the approval by the required majority of members to modify the statutes of the company, it’s then time to designate the liquidator. One of the advantages of this process is that the liquidator can be the director himself, or otherwise a member or a third party, but it’s up to the company to decide.
Once the process of liquidation has been started, there’s a maximum of three years to conclude it.
The steps to declare the liquidation of the company are the following:
The minutes of the general assembly must be registered in the corresponding Corporation Tax Service (“Service des Impôts des Entreprises” in French or “SIE”), depending on the location of the head office. The price of this registration varies depending on the capital of the company:
- € 375 for companies whose capital is below € 225,000
- € 500 for companies whose capital is over € 225,000
After the registration, a legal announcement has to be published in a journal offering such service. To save costs on the publication, the same ad can announce both the intention of dissolution and the opening of the liquidation process.
The following step is to register in the Commercial Court the necessary documents to inform about the dissolution:
- Minutes of the general assembly registered in the tax service;
- Proof of the publication of the legal ad;
- Certificate of clean background of the liquidator;
- Copy of the ID of the liquidator;
- Dully completed ‘M2’ form.
The cost of registering the dissolution is € 205,50.
After declaring the dissolution, the designated liquidator proceeds to terminate the accounting situation of the company by:
- Making an inventory of the patrimony (real estate, stocks…);
- Retrieving the debts (clients’ invoices to be paid);
- Paying the debts;
- Selling the actives, for example, the patrimony declared in the inventory.
Once the debts have been paid off and the company has sold its actives, the liquidator must determine the balance of the company. In case of a surplus or positive balance, the amount is subject to a 2.5 % tax, corresponding to its registration fee. In case of said surplus, the capital is to be divided amongst the stakeholders depending on their initial participation. In case of deficit, however, they will have to respond to the debt according to their responsibility in the capital of the company.
It’s the liquidator’s duty to inform the stakeholders about the progress of the operations on a regular basis, as well as calling them for a general assembly 6 months after his designation. Having carried out all the expected operations, the liquidator, by means of a general assembly, must present the accounts to the stakeholders and, upon agreement, he must then declare the end of the liquidation.
Nevertheless, if there’s no agreement, the liquidator will have to register the accounts in the Commercial Court which, in turn, will make them public, enabling every interested party to make their claims, and only after proceed to the closure of the liquidation. This action entails also the divestment of the liquidator.
After the conclusion of the liquidation, a new legal ad has to be published in a journal to inform about the end of the process and the Commercial Court will also make a mention in the BODACC.
END OF THE PROCESS
The definitive end of the company is known as radiation of the head office. It means that the company is effectively removed from the registry and doesn’t exist anymore; neither its professional activity nor its legal entity. For this matter, a radiation dossier has to be registered in the corresponding Commercial Court and it should contain:
- An act stating the end of the liquidation operations certified by the liquidator.
- A copy of the closing accounts, also certified by the liquidator.
- A ‘M4’ form dully completed and signed by the liquidator.
- A certificate of the publication of a legal ad.
Once the radiation has taken place, the process is concluded and the enterprise is definitively closed.