Conducting liquidation frees the financial system of the company from inefficient and ineffective productions, reduces the occurrence of risks, warning potential and existing counterparties from cooperation with financially insolvent entities. Insolvency contributes to more crises for creditors.

Liquidation of legal entity is the termination of its activity without transfer of its rights and liabilities to other persons, it is performed by means of exclusion from the State Registry of Legal Entities (article 61 of the Civil Code of the RF). Options of liquidation of legal entities:

Voluntary liquidation

The owner decides on termination of the legal entity. The procedure of beginning liquidation consists of the following stages: appointment of the liquidation commission and the liquidator, the notice of tax inspection about the fact of termination, the publication of liquidation in the "Bulletin of the state registration", waiting for 2 months and submission of documents on termination of liquidation - it is intermediate liquidation balance sheet. Then by results of completion of all stages the legal body is excluded from the Uniform State Register of Legal Entities under the decision of participants.

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Voluntary way of liquidation is considered the most widespread and correct, as after closing of the company all obligations under the law to the tax bodies, creditors and debtors are fulfilled.

Liquidation of inactive legal entities

Most entrepreneurs believe that when they change the CEO or founder (business owner), they no longer have anything to do with the company and subsequently stop submitting reports and conducting financial and economic operations. The tax authority decides to exclude the company from the Unified State Register of Legal Entities at the end of the year on the basis of the inactive legal entity.

When liquidating using this method, there is a risk for the CEO or founder to be disqualified as an entrepreneur for a period of one to three years. This can happen if the company being liquidated had debts to the budget.

Liquidation due to invalidity of information in the Unified State Register of Legal Entities

At the moment this method is the most common. For example, this can happen in the case when a legal entity is not located at the address of registration.

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Reorganization of legal entity

 A merger, division, takeover, spin-off of legal entities are cases in which one company ceases its activities and a new organization is formed. In this case, all liabilities are transferred to the legal successor of the company that ceased its activities.

Nowadays this tool is very rarely used for the closing of legal entities, due to the high risk of problems with tax authorities.

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The practical importance of the liquidation of legal entities lies in the fact that the timely decision will prevent the negative consequences in financial transactions with potentially insolvent organizations, the crisis phenomena which threaten the unstable financial system of Russia.

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You can read the full article in the Daily Moscow.