VNWhen business orientations change or operations are no longer efficient, carrying out lawful dissolution procedures is a necessary step to protect the rights and reputation of business owners. However, this process is often lengthy and complex as it requires working with multiple authorities, including tax, police, and business registration authorities.
1. Dissolution of enterprises
Enterprise dissolution is a procedure to terminate the legal existence of an enterprise and simultaneously invalidate its tax identification number.
2. Cases of enterprise dissolution
According to the Law on Enterprises 2020, an enterprise shall be dissolved in the following cases:
– The operating period specified in the company’s charter expires without an extension decision;
– The enterprise is dissolved under a resolution or decision of the owner (for sole proprietorships), the Board of Partners (for partnerships), the Board of Members and the owner (for limited liability companies) or the GMS (for joint stock companies);
– The enterprise fails to maintain the adequate number of members prescribed in this Law for 06 consecutive months without converting into another type of business;
– The Certificate of Enterprise Registration is revoked, unless otherwise prescribed by the Law on Tax Administration.
3. Enterprise dissolution procedures:
The enterprise dissolution procedure consists of 03 steps as follows:
Step 1: Ratifying the dissolution resolution or decision and notifying related parties
Pursuant to Article 208 of the Law on Enterprises 2020, the owner (for sole proprietorships), the Board of Partners (for partnerships), the Board of Members and the owner (for limited liability companies) or the GMS (for joint stock companies) shall issue a resolution or decision on the dissolution.
This resolution or decision must be sent to creditors and employees, and posted on the National Enterprise Registration Portal.
Step 2: Fulfilling obligations with the tax authority
This is the most time-consuming stage in the dissolution process, depending on the tax obligation status of the enterprise.
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Requesting confirmation of no outstanding import-export tax debts.
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Submitting application for deactivation of tax identification number to the managing tax authority;
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Handling unused invoices and paying outstanding tax debts (if any). The enterprise can only be dissolved when all tax debts are fully paid;
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Conducting CIT and PIT finalization and financial statements up to the time of dissolution.
Note: In case the enterprise’s tax identification number is locked, it must carry out procedures to explain and reactivate the tax identification number before deciding to dissolve.
Step 3: Completing procedures at the business registration authority
After receiving notification of fulfillment of tax obligations, the enterprise submits the application for dissolution to the Business Registration Office to remove its name from the national enterprise registration database.
4. Risks of failing to dissolve an enterprise in accordance with regulations
Many business owners choose to “abandon” their companies (ceasing business operations and failing to submit tax returns) instead of carrying out proper enterprise dissolution procedures, which leads to severe risks:
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Locking of tax identification number: Causes difficulties when attempting to establish a new enterprise or act as the legal representative for another entity.
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Administrative penalties: Fines for late submission of tax returns can reach tens of millions of Dong.
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Personal liability: Owners and legal representatives shall be jointly responsible for the unpaid debts of the enterprise. In cases where the enterprise owes tax debts, the legal representative may be subject to exit suspension.
- Inability to establish new companies: If owners and legal representatives have multiple “abandoned” companies with locked tax identification numbers, they may face restrictions on their right to establish new enterprises due to tax compliance risks.
5. Shutting down dependent units of an enterprise
For dependent units of an enterprise such as branches, representative offices, and business locations, when the enterprise no longer has operational needs, it must carry out procedures for shutdown.
Depending on the accounting regime of the dependent unit and its method of value-added tax declaration and payment, the shutdown procedure consists of the following 02 steps:
- Finalizing tax obligations arising from the dependent unit.
- Submitting the application for shutdown to the Business Registration Office where the dependent unit is located.
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Note: Dissolution will terminate the entire legal status of the enterprise. In case the enterprise wishes to suspend operations to adjust its business strategy, please refer to the consultation service on business suspension at Simple Law.
>>> Read more: Business Suspension and Resumption
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