Liquidation of a business entity with no debts means the process of converting the economic entity's assets into cash, settlement of all accounts and distribution of the remaining cash or property between owners.
Economic entities with financial difficulties have to options: restructuring or bankruptcy.
Natural person's business liquidation
Sole proprietorship means independent business activities carried out by a natural person with the aim to earn incomes or gain any other economic benefits over a continuous period.
Sole proprietorship under a business certificate ends automatically, unless a natural person acting under the business certificate or carrying out sole proprietorship activities under the latter applies to the State Tax Inspectorate for its validity extension. Since the business certificate is issued for the limited period of time and it is of limited-term validity by its nature, therefore cessation of activities under business certificate does not require any special procedures to be completed. Business certificates can be checked on website of the State Tax Inspectorate, by entering business certificate number.
Once a person decides to cease sole proprietorship under a certificate, it can be done without any restrictions at any time, upon submitting a notice of cessation of activities to the tax administrator irrespective of the number of the person's creditors, the amount of liabilities owed to them, etc. A notice about cessation of activities must be given at least 5 working days before the cessation. Permanent resident of Lithuania must submit notice Form FR0792, temporary Form FR0224. Documents can be submitted also online through Online declaration system.
Natural persons engaged in sole proprietorship activities are liable for operating results by full extent of their assets, same as economic entities of unlimited civil liability. If activities are ceased because of solvency issue, liabilities admitted by the court or by any other procedure must be fulfilled (or adequate compensation of losses must be collected) through bailiff, e.g. by collecting the required amount from the person's personal property, by debiting his accounts, etc.
Liquidation of company is the end of legal entity's activities, when the latter finish, while rights and duties are not assigned to other legal entities. A liquidator is appointed to liquidate a legal entity.
If a legal person has financial difficulties and is not capable of settling accounts with all his creditors, then business restructuring or bankruptcy takes place.
Bankruptcy procedure is carried out as follows:
- Court decides to initiate bankruptcy case.
- Creditors submit their claims within 30-45 days from the entry into force of the court decision to initiate the bankruptcy case).
- The court approves creditors' claims by its decision (within 45 days from the day of receipt of the list of creditors and their claims).
- A meeting of creditors is convened (within 30 working days from the entry into force of the court decision on approval of the creditors' claims).
- The court adopts a decision on declaring the company bankrupt or under liquidation because of bankruptcy (within 3 months from the entry into force of the decision on the approval of the creditors' claims).
- Company is liquidated (company assets must be sold, accounts must be settled with its creditors within 24 months for the latest).
- The court adopts decision on the termination of the company.
- The company is removed from the registers.