When deciding to dissolve a limited liability company, shareholders must inform the tax authorities. They should also settle accounts with creditors, and pay income tax on the shares returned to them
There are several reasons for the termination of a limited liability company. The most common is the unprofitability of investments. The reason for termination can also be the continuous incurring of losses, inability to obtain bank loans or failure to obtain expected permits or licenses. It can also be the death of a partner or the start of business in another form. The rules to be followed when dissolving and liquidating a limited liability company are set forth in the Commercial Companies Code (CCC).

Reasons for dissolution of the company

The company is dissolved after liquidation. Article 270 of the Commercial Companies Code lists among the reasons for its dissolution:

• Those that are provided for in the contract, - the declaration of bankruptcy,
• adoption of a resolution of the shareholders to dissolve the company or to transfer its registered office abroad (stated by a protocol prepared by a notary public), as well as
• Other reasons provided by law. This may include a merger with another company.

Opening of liquidation

In practice, it is most often the shareholders who pass a resolution to dissolve the company. This results in the opening of liquidation. At this time, the company retains its legal personality, while in trade it appears under the name with the designation "in liquidation." However, it is necessary to remember that before paying off all liabilities, the company should not distribute profits to partners and should not divide its assets.

Duties of liquidators

Information about the opening of liquidation, the names of liquidators and their addresses, as well as details about how the company will be represented during its liquidation must be reported to the registry court. This is the duty of liquidators. They must also report to the court any changes related to the mentioned information. Another duty of liquidators is to announce the dissolution of the company, open liquidation and summon creditors to report their claims within three months from the date of the announcement. Usually such an announcement is made in the Court and Commercial Gazette.

Balance sheet and report

The next steps reserved for liquidators are to prepare the opening balance sheet for liquidation and submit it to the shareholders' meeting for approval.
The liquidators should also prepare a financial report as of the day before the distribution of the assets remaining after satisfying and securing creditors (the so-called liquidation report). This should be approved by the shareholders' meeting. In addition to the liquidation report, it is still necessary to prepare a separate financial statement as of the date of completion of liquidation.
After approving the financial statements, the liquidators announce them at the company's registered office and submit them to the registry along with an application to strike the company off the register. As soon as the company is stricken from the register, its dissolution takes place.

Fiscal year

The company is required to close its books on the day before the day it goes into liquidation and on the day it ceases operations (i.e., liquidation ends). On the other hand, the company opens the books on the day it begins liquidation. If the company closes the books before the expiration of the fiscal year established by it, the fiscal year is considered to be the period from the first day of the month following the end of the previous fiscal year to the date of closing the books. The next fiscal year begins from the date the books are opened. Determining the length of the tax year is important in determining the deadlines for filing tax returns. The return must be filed by the end of the third month of the year following the tax year. By the same date, you must pay the tax due or the difference between the tax due and the sum of the advance payments due. The company shall file returns for the tax year before it went into liquidation and for the tax year or years in which it was liquidated.

Example
The company's fiscal year is the calendar year. On January 27, 2007, the company went into liquidation. It was terminated on October 21, 2007. Therefore, the company will experience two tax years in 2007:

• the first from January 1 to 26,
• The second from January 27 to October 21.

The company will have to close its books on January 26, 2007 and open them on January 27 in order to close them again on October 21, 2007. It will also have to file two tax returns. One for the fiscal year running from January 1 to 26, 2007, and another for the period from January 27 to October 21, 2007.

Income from sales

Income received by a company in liquidation is taxed in accordance with the provisions of the Corporate Income Tax Act (CITA). If the property is sold during liquidation, the income will be the value expressed in the price specified in the contract. However, the obtained income is reduced by the costs of obtaining it. These costs - in the case of disposal of tangible or intangible assets against payment - will be the updated and reduced by the sum of depreciation charges for their acquisition.
However, the creation of income in the company will not result in the transfer of its assets to shareholders as part of liquidation proceedings.

Implications for shareholders

However, the liquidation of a limited liability company is connected with certain tax consequences on the part of the shareholders. If the shareholder is a natural person - the provisions of the A.l.d.o.f. will apply, if a legal person - the A.l.d.o.p. Income (revenue) from participation in the profits of legal persons will be the value of property received in connection with the liquidation of the legal person. One has to pay 19 percent tax on it (Art. 30a par. 1 pt. 4 u.p.d.o.f. and Art. 22 par. 1 u.p.d.o.p.). However, the tax will be calculated on a different amount in the case of shareholders of natural persons and on a different amount in the case of shareholders of legal entities.

Tax calculated on income

When the shareholder is an individual, the 19% tax is paid without deducting income from expenses. Thus, he must pay tax on the entire value of the transferred property without deducting the expenses incurred in acquiring the shares. Individuals receiving a return of the value of their shares will also not apply Article 21 (1) (50) of the AIF. This provision exempts from tax income received from the return of shares or contributions in a cooperative or contributions in a partnership. The exemption applies up to the amount of shares or contributions made to a cooperative or contributions to a partnership. Since a limited liability company is a corporation and not a partnership, this exemption will not apply.

Legal entities pay on the surplus

Settlements with a shareholder of a legal entity will be different. In his case, the value of the assets constituting the cost of acquiring or acquiring these assets will not be included in income. Only the surplus between the value of the assets obtained by the shareholder and the cost of acquiring shares in the liquidated company will be subject to 19% CIT. Taxation of the return of shares in the case of individuals is therefore less favorable than for shareholders of legal entities.

Some offices favorably

We should add that contrary to the literal wording of the regulations, some tax authorities take a position favorable to taxpayers and consider that in the case of individuals, only the excess of the value of the returned assets over the expenses for their acquisition in the liquidated company is taxed. This is because it is "income actually received" (so, for example, the Second Tax Office in Radom in its interpretation of April 27, 2007, 1425/034/415/4/2007).

The end of the VAT taxpayer

Liquidation of a limited liability company involves the obligation to notify the tax authorities of the cessation of operations. The VAT-Z form is used for this purpose. However, it is not necessary to prepare a physical inventory, as mentioned in Article 14 of the VAT Law. A limited liability company has no such obligation.

What about the unaccounted-for surplus

It may turn out that after the liquidation of the company there remains an excess of VAT not accounted for in the last return. Since the legal existence of the VAT taxpayer ceases, the tax authorities have no way to return it. There is also no provision that would entitle former shareholders, for example, to collect the surplus. To avoid these problems, one would have to show the excess to be refunded in the VAT-7 return before the cessation of operations and before submitting the VAT-Z. You could also try to "balance" the input tax with the output tax, e.g. by selling the company's assets in the last month before its dissolution (provided, of course, that the company has such assets).

Shareholders may divide the assets remaining after satisfying creditors no earlier than six months after the date of the announcement of the opening of liquidation and the summons of creditors. The division shall take place according to the shares held, unless otherwise stipulated in the agreement.

Obligations of a company in liquidation

During the liquidation of the company, it is necessary:

• the termination of its current interests,
• debt collection,
• Fulfillment of all obligations,
• Liquidation of assets.

The liquidated company is the payer

When transferring assets, a liquidated company has certain obligations. When it returns property to an individual, it should, as a payer, collect a lump sum tax and pay it into the account of the tax office by the 20th of the month following that in which it collected the tax. By the end of January of the following year, the company should send annual PIT-8AR declarations to the tax office.
When assets are transferred to legal entities, she collects income tax on the day of the distribution. She pays it to the tax office by the 7th day of the month following the one in which she collected it. On the same date, she sends the shareholder information CIT-7. In addition, she sends the CIT-6R return to the tax office. It has until the end of the first month after the year in which the tax liability arose.