A company is a legal person. As such it has what is called “perpetual succession”. In other words it never dies.
The question offers arises how a company can be dissolved or be “killed”.
In most common law jurisdictions there two methods:
One is called “strike-off” and the other “liquidation”.
We shall examine each in turn.
With strike-off the company simply declares that it does it ceased carrying on any business.
The company must close all bank accounts, should not have any obligations, receivables or liabilities.
It should also have all its financial statements up to date and comply with national tax legislation.
The directors of the company pass a resolution to the effect that the company has no business activities. The Companies Law uses the terminology “defunct” which means “no longer existing or functioning“
An important thing to note is that with strike-off the company does not die but is rather put into a “coma”. This is because in the future any creditor, shareholder or director of the company may apply to the court to have it reinstated.
There are two types of liquidation of a company.
A voluntary liquidation and an involuntary liquidation.
In this article we refer to voluntary liquidation.
Put simply it is where the shareholders of the company decide to shut it down. To do that there is an important pre-condition. The company must be solvent. This means it should be in a position to pay all its creditors and have no liabilities.
That is why the directors pass a resolution which is called “declaration of solvency”.
The company should also settle all its debts within 12 months from the date that the winding – up procedure started.
It is also a precondition that the company settles all its tax obligations and gets a tax clearance certificate.
If the above are satisfied the liquidator will call a general meeting, present the accounts and the liquidate the company. The liquidation order is issued by the Court.
What is the difference between strike off and liquidation?
As indicated in strike-off the company is not dissolved but it is just striken – off the register. At any time it can be reinstated following a court order.
On the contrary, with the liquidation, once the company is dissolved there is no way to revive it.
Also, in the case of the liquidation the final order is issued by the court , whereas with strike-off there is not court involved.
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