Closing a sole proprietorship?
There are two main stages involved in winding up a sole trader’s business: a declaration of cessation of activity, followed by a tax declaration.
Declaring that your sole proprietorship has ceased trading
First, to wind up your business, you need to complete the cessation of activity form and relevant documents and provide the Trade and commercial register with it.
This procedure must be completed no later than 30 days after the effective date of cessation of your activity.
Declaring the closure of your sole proprietorship for tax purposes
The second step is to declare the closure of your business for tax purposes. As a general rule, this concerns income tax, VAT and the Contribution Économique Territoriale (CET). When you cease trading, you are immediately taxed on a number of items:
– Profits made since the end of your last tax year;
– Deferred profits, particularly capital gains on the transfer of company shares;
– capital gains on the sale of fixed assets.
Don’t forget that your final tax returns must be filed within 45 days of the end of your business, or 60 days for self-employed professionals.
For VAT, you must file your return:
No later than the 30th day after you cease trading, if you are subject to the standard actual VAT regime;
No later than the 60th day after you cease trading, if you are subject to the simplified VAT scheme.
CET is calculated annually. If you cease trading during the course of the year, you may request a refund on a pro rata basis for the duration of your business.
Closing a company?
There are various ways to close a company. It can be done temporarily or permanently.
If you choose a temporary cessation, this means that your business takes a break before resuming its activities or closing down permanently. This decision must be taken by the company’s legal representative. Note that certain obligations, such as social security and accounting declarations, remain despite this pause.
The permanent closure of a company is generally achieved by dissolution-liquidation, two consecutive stages. Dissolution is the cessation of the company’s activities, decided by the partners or by the Commercial Court judge. Liquidation involves converting the company’s assets into cash to repay creditors, employees or partners. Liquidation may be amicable or judicial.
Once your assets have been liquidated, you must remove the company from the official registers. You will then have to keep certain documents for specific periods, depending on their nature.
Step to close a company :
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Step 1: Approve the dissolution of the company.
Partners must approve the dissolution of the company. To perform it, they meet at an Extraordinary General Meeting (EGM). The majority rules vary depending on the legal form of the company:
- Dissolution-liquidation of a SARL
For companies created after 4 August 4th 2005, the decision must be taken by a majority of partners representing 2/3 of the shares.
The partners present or represented must hold 1/4 of the shares when the meeting is first convened. For a second meeting, the partners must hold 1/5 of the shares.
- Dissolution-liquidation of an SCI
The decision to dissolve the company must be approved unanimously by the partners but the articles of association can derogate from this rule.
- Dissolution-liquidation of a SAS
The decision to dissolve the company must be taken by the partners of the SAS.
However, the law does not specify the number of partners who must be present (quorum), the majority or the method of consultation. All these terms and conditions can be freely defined in the company’s articles of association.
In the event the structure is owned by a sole partner, dissolution procedure differs slightly since the decision will not be taken in a general assembly.
Step 2: Complete the procedures for winding up the company
Once the intention to cease trading has been agreed, the next step is to complete the dissolution formalities and inform the Trade and Commercial Registry. This phase is crucial in the process of winding up your business.
First, an announcement of dissolution must be published in an official legal paper, indicating the name of the liquidator. This must be done within 30 days of the dissolution minutes being drawn up by the General Meeting.
Finally, to formalise the closure of a company, you need to complete the compulsory formalities. This involves filling in the company closure form and providing the required supporting documents (tax documents included). It is fully advised to be assisted during that phase so you are sure not to miss any legal form and obligation.
Step 3: Liquidating the company’s assets
Once the registry has been notified of your decision to dissolve your business, you can proceed with the liquidation of the company. This is the last stage before confirming the definitive closure of your company.
During this phase, your company’s various assets are converted into cash, with the aim of repaying creditors or, at the end, partners. During this phase, the business must be emptied of certain items:
- Material: to realise the company’s assets (sale of the company’s movable and immovable property)
- Financial: recover your debts and pay off the company’s liabilities (settle your debts)
- Human: making your employees redundant
- Accounting: drawing up the company’s liquidation accounts
To conclude the liquidation process, the shareholders must hold a General Meeting to approve the liquidator’s report, confirm that the liquidation is complete and decide how to deal with the liquidation surplus or deficit.
Step 4: Hold a final General Meeting
As previously mentioned, a new and final General Meeting must be held to approve the accounts. If the company has realised a liquidation surplus, it will be distributed among the shareholders in accordance with the provisions of the Articles of Association.
Please note: If there is a liquidation surplus, it must be registered. This formality costs 2.5% of the amount of the bonus (“Droit de partage”). It will also be subject to the payment of social security contributions and an income tax instalment.
Step 5: Deregister the company
The final and undoubtedly most symbolic stage is the removal of the company from the official registers in which it was entered. After completing the formalities you will need to provide:
- A certificate of publication in the legal paper;
- The minutes of the closing of operations
Once deregistered, your company no longer legally exists.
How long does it take to close a sole proprietorship/company?
Time required to wind up a company is longer than for a sole proprietorship since it requires more formalities to be performed and registered.
The procedure is accelerated in the event of a Universal Transfer of Assets (TUP). In this case, there is no need to wind up the company, appoint a liquidator or a contribution auditor, or draw up a merger report. It is simply a dissolution without liquidation, the aim being to transfer all the assets and liabilities of the dissolved company to its parent company. However, in such a case, the parent company must own 100% of the dissolved subsidiary.
MFL registered lawyers remain available to help you with the process of setting up, modifying, and closing down your business. Find out more about our registered lawyers on our website and ask for a meeting.