No matter of what type of business you own in the UAE, you should cancel your license and all the associated permits when you have made your decision to close. Liquidation is when a Limited Liability Company, SoleProprietorship, Free Zone Company, Civil Company or Offshore Company closes its operation legally. This article is all about your questions related to liquidation.
What is liquidation?
According to Investopedia, “Liquidation in finance and economics, is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent – meaning it cannot pay its obligations when they come due. As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims.”
Why cancelling the license required?
It is essential for relevant government authorities to know that you are no longer in business, so they will avoid any accumulation of fines and penalties incurred upon your license, when it is not renewed upon expiry date.
If you are a shareholder or power of attorney of the shareholding company, it is important to discharge your liabilities towards creditors and partners and protect your interests and shares. It is also wise to put your goodwill and business reputation in perspective, if you decide to open a business again.
How to close a company?
Liquidation of company should be done, or the company can or must be liquidated or deregistered in the following cases (one case only is enough):
- If the majority of the shareholders decide to liquidate the company
- If the company suffers insolvency, which causes accumulated loss that is greater than half of the authorized capital
- If there is a court ruling to dissolve and liquidate the company
- Voluntary liquidation can also happen if a vital member of the organization exits the company and the shareholders decide not to continue operations
To start the process, you (the license holder) at the initial stageneeds to notify the regulatory authority as per their requirements. There after, the shareholders need to pass a resolution stating the company is under liquidation and appoint a liquidator.
The intention for closing the company needs to be published in newspapers. You will also need NOC from utility providing companies and other applicable government departments. Once all the paperwork is cleared, you need to cancel your employees’ residency permits, cancel the establishment card and close bank accounts. Finally, you will receive an official confirmation from the governing authority.
Company liquidation requires a qualified approach with strict adherence to formal procedures. Liquidator having the expertise can help you meet the liquidation requirements.
What is the good side of going through Liquidation?
It happens to the company, not the employees within the company.
- Management of the liquidation is passed on to the appointed liquidator, relieving some of the stress that a director may incur as a result of the process.
- Once the company is liquidated, creditors can no longer pursue directors for payments.
- Unsecured debts are written off.
- As soon as the company closes, all legal action against the company is halted.
What are the formalities for cancelling your business license?
Cancelling procedure of your business license depends on the legal structure of the registered company. All you need to do is to apply for clearance from below listed governing authorities:
- Ministry of Human Resources and Emiratisation
- Directorate of Residency and Foreigners Affairs (DNRD)
- the relevant water and electricity authority (the DEWA)
- the leasing entity and other authorities where the company has its account.
If you are confused about the conditions of private liquidation, here is the clarification:
- The license should have been expired for more than 2 years in order to file for liquidation.
- Provide supporting documents that strengthens the dissolution request, such as the escape of a partner.
- Company needs to provide a letter from Ministry of Human Resources and Emiratisationstating the absence of sponsored people on the license.
- The local partner shall acknowledge his/her liability towards the company.
What is freezing a trade license?
In case you have decided to not to operate your company for a couple of years, here is a new option: freezing a license is completely different from terminating.
In Dubai, companies have an option to keep their license inactive for three years by paying a certain freezing charge. However, they cannot extend it beyond that specific approved period.
What are the conditions for freezing a license?
You need to provide:
- a letter requesting to freeze the licensing temporarily
- a letter from Ministry of Human Resources and Emiratisation signifying the absence of sponsored people on the license
- a report from the inspection department in DED.