How do I dissolve a corporation? 

August 8, 2023

Author: Laura Salomón

When a corporation fulfills the purpose for which it was incorporated, it is very common for its shareholders to keep the corporation active or “alive”, even though it no longer has assets or operations.

Maintaining a company under these conditions would entail various expenses for its owner, such as the obligations of renewing the commercial registry, holding annual meetings and filing annual tax returns, among others.

In view of this, if a company is in disuse, it is advisable to proceed with its dissolution and liquidation.

Dissolution is the process by which the legal personality of a commercial company is extinguished. Law No. 479-08 on Commercial Companies and Individual Limited Liability Companies (hereinafter “Law 479-08” or the “Companies Law”), establishes the causes for which the dissolution of a company may be approved.

Approval of the dissolution of a Corporation (S.A.)
The Extraordinary General Assembly of Shareholders of a commercial company is the only body of the company with the power to authorize the dissolution and voluntary liquidation thereof.

For such purposes, in order for the Extraordinary General Meeting of a commercial company to validly meet and decide on its dissolution and liquidation, the presence of at least one half plus one of the issued and paid shares is required at the first call.

If this quorum is not reached, at the second call at least one third of the shares must be present.

Grounds for dissolution of a corporation
The dissolution of a Private Subscription Corporation may be approved for any of the following reasons:

By decision of the extraordinary general meeting, provided that the concurrence of shareholders at the meeting is adopted by at least two-thirds (2/3) of the subscribed and paid-in capital with voting rights.

– Upon fulfillment of the term of duration established in the bylaws.

– Due to the manifest impossibility of the company to carry out its corporate purpose, in such a way that its operation becomes impossible.

– As a consequence of losses that reduce the corporate assets to an amount less than one-half of the subscribed and paid-in capital stock, unless the latter is reduced or increased to a sufficient extent.

– For the reduction of the capital stock below the legal minimum.

– For the merger or total spin-off of the company.

– Reduction of the number of shareholders to less than two (2) for a period of one year.

– For any other cause established in the corporate bylaws.

In addition, Law No. 479-08 (see paragraph II of article 301) provides that any interested third party may file a lawsuit for the dissolution of a company, as long as the Extraordinary General Assembly of the called company has not met; to decide on the dissolution or, if said assembly could not validly meet in a last call.

Upon dissolution of the corporation, what happens?
After the dissolution of a company is approved by the Extraordinary General Shareholders’ Meeting or, when dissolution is declared by a court decision that cannot be appealed, the company will begin the process of liquidating its assets and its company name will be accompanied by the mention “Company in Liquidation”.

After the company initiates the liquidation process, it will remain in force until the liquidation process is completely concluded.

Law 479-08 establishes that from the moment the company is declared in liquidation, the administrators shall cease to represent it. In this case, the liquidators appointed by the shareholders shall assume all the functions of management and representation of the company, including the following:

– To sign, jointly with the administrators, the inventory and balance sheet of the company at the time of commencing their functions with reference to the day on which the liquidation begins.

– To keep and safeguard the accounting entries and corporate records of the company, and to ensure the integrity of its assets.

– To carry out the pending commercial operations and the new operations necessary for the liquidation of the company.

– To dispose of the corporate assets.

– To collect credits in the amount necessary to satisfy creditors.

– To enter into transactions and arbitration when it is in the best interests of the company.

– To pay creditors and partners in accordance with the rules set forth in the bylaws or in this law.

– To represent the company for the fulfillment of the aforementioned purposes.

Once the liquidation process is complete, Article 419 of the Companies Law requires the liquidator to publish a notice of liquidation closure in a newspaper of national circulation.

The dissolution and liquidation of a corporation must be registered and recorded at the corresponding Chamber of Commerce and Production and in the General Directorate of Internal Taxes (DGII), to manage the cancellation of the Mercantile Registry and the National Taxpayer Registry Act of the Company.

In order to mitigate the legal risks that the dissolution and liquidation of a corporation may entail, it is important to obtain professional advice for the specific case of your company.