There are two primary manners in which companies are closed down. Companies still solvent at the time of closure can process a voluntary closure, whereas insolvent companies can be ordered to wind down with a court order.
The compulsory closing of companies is regulated under insolvency law and, therefore, will not be analysed in detail here. However, our insolvency lawyers page provides more information about our services regarding insolvency proceedings in Germany.
Winding up a company follows a specific procedure. The primary aim of winding down a company is to remove the business from the trade register. It is not enough to stop trading as the company itself must be removed from existence. To wind up a company, there are three steps involved:
Dissolution: The dissolution phase of winding down a company involves a majority of the shareholders (generally at least three-quarters of them) agreeing to a dissolution resolution. It is worth bearing in mind that the number needed may vary depending on what is stated in the company’s Articles of Association.
Deciding on the dissolution of the company involves the company shareholders voting to wind up the company, generally with a balance of three-quarters of the shareholders voting for it. This requirement can be amended in the Articles of Association if necessary. Once the dissolution of the company has been decided upon, the company has started its winding up phase.
The company needs to inform others that it is winding up its business. They can inform them by listing i.L (in Liquidation) or i. Abw (in Abwicklung) next to the company’s name.
For a company dissolution to continue, the dissolution must be notarised and entered into the Commercial Register. From there on, the company enters the liquidation phase. The dissolution of the company is regulated by § 65 GmbHG (Limited Liabilities Act).
Liquidation: The next step taken is the liquidation of the company. Liquidation involves the concluding of any ongoing business and the correct distribution of company assets. For the liquidation phase to proceed, the company must appoint a liquidator to oversee it. They represent the company during this time and oversee the distribution of company assets as appropriate.
The liquidator of the company is generally one of the following people:
- The managing director of the company,
- A liquidator is decided upon within the Articles of Association and is not the managing director,
- The court appoints a liquidator.
In most cases, the liquidator will be the company’s managing director(s). There should be no criminal law reasons preventing the individual’s appointment to act on behalf of the company in this role.
Deletion: Once the liquidation issues have been concluded, the deletion process can occur. Deletion is the final act of closing the company. The deletion of the company involves the liquidator registering the deletion in the commercial register. This process consists of the liquidator signing the document stating that the company should be closed down.
Once this occurs, the company can no longer trade and, for most purposes, no longer exist. However, the company must keep its accounts and books for ten years, even after the company’s closing. This requirement is necessary to ensure that it can still be audited for tax purposes. The liquidator or another designated individual decided upon by the company can keep these records available.