What is the process of dissolution of a company?

Oftentimes, during the lifetime of a business, there comes a time when it’s better to cease its operations completely. This happens due to many possible reasons; sometimes the owner wishes to retire, or the firm is not producing sufficient revenues, or it is of no operational use. This dissolving of a business is not a simple process, but a roller coaster ride, full of emotions, legal guidelines, and societal measures. Having the right guide, support, and familiarity can make this process seamless and smooth. In KSA, liquidation is about guarding the shareholders’ rights even during the low times and compliance with the regulatory instructions. This needs careful management and understanding to stay protected from legal queries, penalties, or delays. This guide presents you with a step-by-step, organized document that assists you in thoroughly understanding the company dissolution Saudi Arabia.

Understanding Company Dissolution and Its Reasons

Company dissolution or striking off means that a business wants to take its name off the official register. This entire process ends with the legal standing of a debt-free limited company. After this dissolution, it’s no longer taken as a legal business, and all its matters are required to be settled ahead of time. Most of the time, dissolution is voluntary, and the best choice is when the company’s operations are no longer required. In KSA, the process might be straightforward for a company with no such debts; however, for one with any outstanding debts, this process expands, where it’s mandatory to pay the creditors before legally closing it down. After all the legal procedures of liquidation are done, the company legally exists, which means that it will no longer be able to conduct any business activity or take part in any legal proceedings. The company can be dissolved for many reasons, and some of these are:

• Ending of Company’s Term: If a company was legalized for a certain duration, once that deadline expires, the company is dissolved unless it applies for extending
• Agreement of the Partners: The partners or shareholders decide to cease business activities voluntarily
• Judicial Notice: The court may also order the nullification of a business due to certain illegal reasons or penalties

Apart from these reasons, the Companies Law may also shut down a company for certain objectives. Any triggering event can start the liquidation role and retain its legal personality to the extent necessary for liquidation.

The Complete Liquidation Process Step-by-Step

1.     Preliminary Assessment Before Liquidation

Before the liquidation process initiation, the stakeholders are required to prepare a solvency statement to analyze whether assets exceed the liabilities, and if the company is fulfilling its debt during the time of liquidation. This statement is then shared with the stakeholders within a month. In any case, if there are any events or detection of unsettled debts or financial suffering, the company will not be eligible for voluntary liquidation but must close under the bankruptcy law procedures. When the company chooses voluntary liquidation instead of insolvency, it creates joint liability for directors or stakeholders.

2.     Decision to Liquidate

If the stakeholders choose to proceed and the company is solvent, the higher general assembly then passes a legal resolution to start the liquidation. This resolution hires a liquidator, assists them with duties, fixes their charges, and assembles a liquidation duration which can be up to 5 years and can be extended later. Although the board of authority ends once the dissolution ends, it may temporarily operate until the liquidator formally takes over their duty. The shareholder assembly will keep working but not take part in the concerns of the liquidator.

3.     Appointment of the Liquidator

The chosen liquidator must be a professional and qualified accountant, lawyer, or licensed advisor. The role demands a complete understanding of the liquidator’s authorities, remuneration, and work conditions. This hiring must take place within 60 days of dissolution; otherwise, the court will appoint one on behalf of the shareholders if requested. In the case of court orders, it immediately appoints the liquidator rather than giving a deadline. After the liquidator is appointed, they will be entered formally in the commercial register to verify their authority.

4.     Public Announcement & Notification to Creditors

After specifying the liquidator, they must prepare and publish a public notice for the liquidation of the company in a local newspaper and official platforms to let the creditors know through this announcement. They can then submit any outstanding claims within the given timeframe. Liquidator also sends notification to the government authorities, which includes the Ministry of Commerce for the commercial registration process, ZATCA for finalizing the last tax filing and clearance, GOSI for employee deregistration, MHRSD for the cancellation of visa and termination of employees, and any other legal body that is required for that specific industry. International businesses must inform MISA to cancel the investment licenses and bring capital back.

5.     Asset Valuation & Inventory

This liquidator thoroughly prepares all the assets and liabilities within 90 days of their appointment after their verification from the auditor. They legally supervise the assets and work forward to selling them through public auctions, tenders, and negotiated sales. During this process, the business must close any missing business operations that will worsen the creditor or asset value.

6.     Settling Liabilities / Paying Creditors

The claims must be filed by the creditors within the given duration. Each claim is then validated by the liquidator and paid based on legal ranking, like creditors are paid first, followed by the preferential claims like the wages of employees and their EOSB, then the unsecured creditors, tax, and social insurance obligations, and the cost of liquidation. Any pending payment to the shareholders is made as defined by ownership percentages in the Articles of Association. The liquidator must also make sure that all the workers’ rights and job protections are fulfilled as per the Saudi Labor Law.

7.     Tax Clearance and Regulatory Deregistration

The final tax returns, zakat, VAT, and any other unfinished returns are then filed with the ZATCA by the liquidator to get the tax clearance. All business licenses, municipal permits, and memberships are also called off. After the financial obligations are sorted out, the corporate bank accounts are also closed. For foreign-invested businesses, the removal of MISA licenses and capital repatriation approvals is also crucial.

8.     Final Liquidation Report & Distribution

After all the liabilities are resolved and the assets are distributed, it’s time to bring an end to through a final paperwork: the liquidation report, which covers the summary of the entire process, asset realization, liabilities paid, settlements with creditors, and issuance of surplus. This report is then audited thoroughly before submitting it.

9.     Deregistration / Cancellation of Commercial Registration

The final audited report is then submitted to the Ministry of Commerce by the liquidator to request the annulment of the Commercial Registration (CR). Once agreed, the Ministry detaches the company from its registry and publishes a liquidation completion certificate to officially declare the termination.

10.  Post-Liquidation Compliance & Record-Keeping

Most of the time, even after logging off, the responsibilities may continue. The liquidator must collect all the corporate, financial, and liquidation records of the given legal period, as these documents must be archived for several years. In case of any unprofessional behavior, negligence, or authority taken beyond the legal instructions by the liquidator will be taken notice of by the creditor during the limited allotted time.

How SS&CO Specialist Support with Company Dissolution Matters?

The Company Dissolution Saudi Arabia can be critical with all the legal ups and downs, team’s rights, and asset distributions. This needs a professional liquidator and customized advisory from a firm with a complete understanding of the procedure. SS&CO KSA is one of the leading accounting companies in Riyadh, expanding its accounting services across the GCC. We know what it takes to smoothly end your business operations, looking at your circumstances and the best recommendations for you. We assist you in:

• Preparing complete solvency statements that help in avoiding any missteps and ensure openness in documents.
• Staying in touch with stakeholders like employees, creditors, and government agencies to get their two cents and keep them involved throughout.
• Making sure that all the legal notices and public announcements are done so that creditors can submit their claims before the time
• Coordinating with the authorities like ZATCA, GOSI, MHRSD, and MISA regarding the clearance process, where needed
• Reporting and properly archiving the reports, accounts, notices, and correspondence
• Planning on how to repatriate the capital for foreign businesses to make sure of compliance with MISA and foreign repatriation obligations
• Addressing the employees’ matters by accurately computing their EOSB, cancellation of Visa, clearing social insurance liabilities, and terminating employment with a formal notice.

We at SSCOKSA make sure that your dissolution process is smooth and sophisticated. Since a systematic and competent liquidation not only guards the interests of the stakeholders and creditors but also promises compliance with Saudi legislation, which lowers any chances of legal stumbling blocks down the road.