Many businesses operate via a company and then are unsure what to do with it once the business is sold or ceases to trade.
A company is a separate legal entity and as such it continues to exist until it is removed from the Companies Register. Unless the Inland Revenue Department (IRD) has been notified that the company is non-active, the company will be required to file an income tax return each year, until it is removed from the Companies Register.
So if you no longer need your company because it has ceased to trade, what options do you have?
If you have other companies that are still trading, you may want to consider an amalgamation. Under an amalgamation, the assets and liabilities of one or more companies (amalgamating companies) are “transferred” to either a new company or an existing one that will carry on trading (amalgamated company). Amalgamations can be advantageous when there are losses in the non-trading company as subject to certain conditions being satisfied these may be able to be transferred to the amalgamated company. Once the amalgamation is complete, the amalgamating companies cease to exist.
If you fail to file the Companies Office annual return, the Registrar of Companies will commence proceedings to have the company removed from the Register. Where the company still has any assets, these assets will transfer to the Crown on removal from the Companies Register. Under this option, if the company has any capital gains, they will not be able to be distributed tax free to the shareholders (unless the company is a qualifying company). Where a company is struck off, it is relatively simple to have the company restored to the Register, should a creditor wish to take action against the company.
Once the company has ceased to trade and has settled all its liabilities and distributed all its assets, the shareholders can resolve to have the company removed from the Companies Register. To do this, the company must first obtain approval from the IRD, then make an application to the Companies Office to have the company removed from the Register. The Companies Office will undertake all the necessary advertising to ensure that there are no creditors which might object to the company being removed.
A liquidation is often the most costly method for having a company removed from the Companies Register. A liquidator must be appointed and it is their responsibility to dispose of all the company’s assets and pay any outstanding liabilities. Once this is done, the liquidator will apply to the Companies Office to have the company removed from the Companies Register on the grounds that the company has ceased to trade and all known creditors have been paid.
Each of the four options listed above has its own advantages and disadvantages. Please contact us if you wish to discuss winding up your company.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact us.