Instructions on procedures for Dissolving a business
Establishment and dissolution are two common processes for a business. In some cases, dissolution is necessary. The dissolution process must achieve the goal of completely ending the existence of the business and ending the responsibility of the business owner and legal representative.
Below is an article providing detailed instructions on the process of dissolving 100% Vietnamese-owned enterprises and foreign-invested enterprises in Vietnam.
1. Understanding business dissolution
1.1. What is business dissolution?
Dissolution of a business can be basically understood as the process of cease to exist of an enterprise under the condition that the enterprise has the ability to pay or guarantee payment of its financial obligations.
Enterprise dissolution is a type administrative procedures by the authorized person in the enterprise to work with the Business Registration Authority. The person carrying out the procedures is the enterprise.
How is the business dissolution procedure different from the bankruptcy procedure?: Bankruptcy is a type of judicial procedure decided by a competent Court after receiving a valid petition. After the Court accepts and issues a bankruptcy declaration. The implementation of procedures according to the judicial process with the participation of: People's Court, People's Procuracy, Administrator, asset management and liquidation enterprise.
Thus, the point to note is: An enterprise may only carry out dissolution procedures under the condition that the enterprise has the ability to pay or guarantee payment of the enterprise's financial obligations.
1.2. In what cases can a business be dissolved?
There are 4 cases of enterprise dissolution as follows:
- End of term stated in the Company Charter without any decision to extend;
- According to the resolution, decision of business owner for private enterprises, of the Board of Members for partnerships, of the Board of Members, company owners for limited liability companies, of the General Meeting of Shareholders for joint stock companies;
- the Company no longer has the minimum number of members according to the provisions of the Enterprise Law (For example, a joint stock company with less than 3 shareholders...) for a period of 06 consecutive months without completing procedures to convert the type of enterprise;
- Business Registration Certificate Revoked, except where otherwise provided by the Law on Tax Administration.
1.3. Who has the right to file a petition to dissolve a business?
Persons entitled to file a petition for dissolution of an enterprise include:
- Business owner for sole proprietorship.
- General Meeting of Shareholders for joint stock companies.
- Members' Council, company owner for limited companies.
- All general partners for a partnership company.
Based on the will of the business owner, the owner, the Members' Council, and the General Meeting of Shareholders, the dissolution of an enterprise is divided into two basic types: voluntary dissolution and compulsory dissolution.
+ Voluntary dissolution:
The termination of operation of the enterprise at the will of the business owner, the owner, the Members' Council, the General Meeting of Shareholders includes:
- Dissolution at the end of the operation term stated in the company's charter without a decision on extension;
- Dissolution under the decision of the business owner, the owner, the Members' Council, the General Meeting of Shareholders of the enterprise.
Compulsory dissolution:
Termination of operation of an enterprise according to the will of a competent state agency when there is a violation of the law on enterprises during the establishment and operation of the enterprise, including:
- Dissolution when the enterprise no longer meets the minimum number of members as prescribed by the law on enterprises within 06 consecutive months without carrying out procedures to change the type of enterprise;
- Dissolution when the enterprise registration certificate is revoked.
2. Order and procedures for enterprise dissolution
6 steps The process of dissolving an enterprise (except in cases where the Certificate of Business Registration is revoked) is carried out as follows:
Step 1: Decision to dissolve
Organize an internal meeting and approve the minutes (For companies with more than 1 member) or the intention (For LLCs with 1 member or private enterprises) on the decision to dissolve the enterprise.
Step 2: Prepare a plan to liquidate rights and obligations
Conduct a review of assets, liabilities, inventories, etc. expected at the time of dissolution and prepare a liquidation plan, such as:
- Pay payables to suppliers and partners (accounts payable).
- Payment of salary, bonus, social insurance, health insurance, unemployment insurance and other benefits to employees.
- Payment of short-term, medium-term and long-term loans.
- Pay all outstanding taxes (VAT, corporate income tax, personal income tax, etc.).
- Ensure completion of asset lease and finance lease contracts (if any).
- Sell or transfer assets such as real estate, machinery, equipment, inventory to recover capital.
- Handling receivables (debt collection from customers and partners).
Rights of use and invoice issuance: At this time, the Company can still issue invoices because the dissolution decision has not been made public, so the tax code has not yet changed to the dissolved status.Therefore, businesses should plan to liquidate assets and goods that require invoices to proceed with liquidation and invoice issuance before publicly announcing the dissolution decision.
Step 3: Publicize the dissolution decision
- Public announcement of the decision to dissolve the enterprise.
- Submit the dissolution decision to the provincial business registration authority within 07 working days from the date of approval.
- Within 03 working days from the date of receipt of the dissolution decision, the provincial business registration authority shall notify the tax authority and the civil enforcement agency. At this time, the tax code will change to the status: The enterprise has stopped the contract but has not completed the procedure to terminate the tax code.
Note: Before submitting the application for enterprise dissolution registration, the enterprise must carry out the procedures for terminating the operation of the branch, representative office, and business location of the enterprise at the provincial-level Business Registration Office where the branch, representative office, and business location are located.
Invoice: At this time, the enterprise cannot use invoices anymore. In case there are still assets and goods that need to be invoiced during the liquidation process, it can apply for a single invoice procedure for use.
Prohibited activities since the enterprise has a decision to dissolve
Since the decision to dissolve the enterprise is issued, the enterprise and its manager are strictly prohibited from performing the following activities:
- Concealment and disposal of assets;
- Waive or reduce the right to claim debt;
- Convert unsecured debts into secured debts using the assets of the enterprise;
- Signing new contracts, except for cases of business dissolution;
- Pledge, mortgage, donate, lease assets;
- Termination of performance of a contract that has come into effect;
- Mobilizing capital in all forms.
Depending on the nature and seriousness of the violation, individuals who commit acts of violating the above provisions may be administratively sanctioned or examined for penal liability; If damage is caused, compensation must be made.
Details of the dissolution registration dossier sent to the Department of Finance (formerly the Department of Planning and Investment) include:
- Minutes of the meeting on dissolution of the shareholders' council (joint stock company) or the members' council (LLC with 2 or more members).
- Decision of the owner or Board of Members/Board of Directors on dissolution.
- Authorization letter to carry out dissolution procedures (if any).
Step 4: Submit tax reports up to the time of dissolution, prepare final financial statements
- The enterprise pays debts and distributes the remaining assets according to regulations.
- The deadline for submitting tax declarations in case of termination of operations, termination of contracts or business reorganization is no later than 45rd day from the date of public announcement of the dissolution decision (Date Step 3 is approved).
- Deadline for submitting Financial Reports with Corporate Income Tax Finalization, therefore, at the latest 45rd day from the date of public announcement of the dissolution decision (Date Step 3 is approved).
Step 5: Clearance of tax and social insurance obligations
Provide documents when tax authorities finalize taxes and explain tax finalization to tax authorities.
- Apply for a tax refund if you need to refund excess VAT payments.
- Explain and resolve any outstanding issues with Customs (if any). It should be noted that the tax authority will be the unit that performs the reconciliation with Customs, but the enterprise is obliged to explain if any, the enterprise does not directly go to the Customs authority for reconciliation.
- Resolve outstanding issues regarding social insurance obligations.
Details of the dossier sent to the tax authority include:
- Document requesting termination of tax code validity.
- Confirmation of no customs tax debt (Currently not required, tax authorities will do it, businesses only need to explain if any).
- Authorization letter to carry out tax procedures (if any).
>> Free Download: Form No. 24_DK_TCT Request to terminate tax code validity
Step 6: Return the business registration certificate (ERC), investment registration certificate (IRC if any) and complete the dissolution
If Steps 4 and 5 are successfully completed, the business is eligible to proceed to this final step, which includes:
Return the Seal to the Seal Issuing Authority (If the seal is issued by the Police)
Implement the announcement of the completion of dissolution.
Submit dissolution documents and carry out procedures to return the Business Registration Certificate.
Receive "Notice of business dissolution/cessation of existence" of the Department of Planning and Investment, now the Department of Finance.
Important note: Bank account of the business to cover the remaining costs of the dissolution process should be paid at the beginning of this stage.
Details of the completed dissolution dossier sent for the second time to the Department of Finance (formerly the Department of Planning and Investment) include:
- Notice of dissolution of enterprise;
- Report on liquidation of corporate assets;
- List of creditors and debts paid;
- Confirmation of completion of tax obligations or equivalent document;
- Confirmation of completion of social insurance obligations or equivalent document;
- Business registration certificate (original, to be submitted upon completion of the procedure)
- Certificate of returning the seal to the police agency (if any);
- Authorization letter for procedures (if any).
In case of dissolution records inaccurate, fake, the following persons: Members of the Board of Directors of a joint stock company, members of the Board of Members of a limited liability company, company owners, private business owners, Directors or General Directors, partners, legal representatives of enterprises must jointly bear responsibility for paying unresolved employee benefits, unpaid taxes, other unpaid debts and be personally responsible before the law for the consequences arising within the time limit. 05 years from the date of submitting the enterprise dissolution dossier to the business registration agency.
3. Procedures for dissolving foreign-invested enterprises
The procedure for dissolving a foreign-invested enterprise is similar to that of a Vietnamese enterprise in the process of terminating the validity of the Enterprise Registration Certificate (ERC) as stated in point 2 above.
In particular, the procedure for dissolving a foreign-invested enterprise may generate two other contents related to the investment project or Investment Registration Certificate (IRC) as follows:
- Procedure terminate investment project, Termination of validity of investment registration certificate (IRC) for foreign invested enterprises with Investment Registration Certificate.
- Money transfer procedure profit if any, investment remaining after completing the obligations to return home through the Bank where the investment account / Capital Account is opened.
- CLOSE investment capital account (DICA).
