Closing down a limited company

When an entrepreneur retires, transitions to a salary worker to another company, the business is no longer profitable or the health of the entrepreneur requires to end operations, it is time for the orderly shutdown of business operations.  

By law, a limited company must always be closed down formally, by either liquidation, bankruptcy or dissolution by merging/demerging. 

The process of closing down a limited company will cost a minimum of a few hundred euros in necessary fees, but depending on the required actions the total cost of shutting down business operations may rise to a couple thousand euros. The final sum depends on liquidation processing, updating the bookkeeping, tax declarations and final financial statements to name a few. 

The Liquidation process

You can voluntarily close down your limited company by liquidation in which both the company and it's operations are shut down completely. This may become necessary for example when you decide to retire or when the business is no longer profitable. 

Liquidation often begins once the General Meeting has made a decision to that effect. The notification of liquidation is signed by a member of the board of directors, the managing director, or by a person authorised by one of them, and a manager is appointed to handle the process. The manager can be part of the board of directors, or someone else from the limited company. 

The public summons to the creditors of the company will be set when the termination of liquidation has been registered, even if there are no known creditors. The public summon must declare a due date for the creditors to report their claims of the company. The managing liquidator will declare the final settlement to the Tax Office and the Trade Registry. The liquidators must also present a final settlement of their administration and the limited company will be officially shutdown only after the final settlement has been presented to the board of directors. 

The liquidation process will take a minimum of five months. Read more about the process here!
 

Declaring bankruptcy 

If a limited company is unable to pay it's debts and is unprofitable, the only way to shut it down is by declaring bankruptcy. You can declare bankruptcy yourself but also one of your company's possible creditors can apply for bankruptcy. The court makes the decision to declare the company bankrupt on application by a debtor or a creditor.

During bankruptcy proceedings, your company may no longer manage its assets. Instead, a court appoints an estate administrator for the bankruptcy estate. The estate administrator converts the company’s assets into cash and distributes the funds among the creditors.

After the bankruptcy proceedings have been completed, the Finnish Patent and Registration Office is notified and enters the details into the trade register. In most cases, this also means the dissolution of your company and no separate termination notification is required.

You can read more about declaring bankruptcy here: 

• Suomi.fi: Bankruptcy proceedings
• Finnish Courts: Bankruptcy
   

The Dissolution of a Limited company: merging or demerging
 

A limited company can be shut down also by merging or demerging. Once the implementation of the merger has been registered with the Finnish Trade Register, the assets and liabilities of the merging company will be transferred to the acquiring company without liquidation. At the same time, the merging company will dissolve.

In a full demerger of a limited liability company, all of the assets and liabilities of the demerging company are transferred to two or more acquiring companies and the demerging company dissolves.

You can read more about corporate restructuring on the Suomi.fi-website here!

Can someone else dissolve a limited company?
 

The Finnish Patent and Registration Office may remove a limited liability company from the Trade Register or set it into liquidation if

• the company has not notified a competent board of directors to the Trade Register
• the company has not disclosed its financial statements to the Trade Register appropriately
• the company has been declared bankrupt, but the bankruptcy has lapsed for lack of funds or
• the company does not have a representative entered in the Trade Register even if the law so requires.

However, the Finnish Patent and Registration Office will first encourage the company to rectify the deficiencies, issuing a deadline for doing so.

A court of law may set a limited liability company into liquidation if a shareholder has brought an action against the company. However, there must be a very weighty reason to set a company into liquidation.

The court may order a company to be removed from the Trade Register if

• the company’s assets are insufficient to cover the costs of the liquidation procedure or information on the amount of assets is not available
• a shareholder, creditor or other party does not declare that they will bear the costs of the liquidation procedure.

What else should be taken into account when closing down a limited company?
 

Make sure that the limited liability company submits the required notifications to the authorities and makes its payments on time even if it is no longer active.

These include value added taxes and employer’s contributions. The company must also submit a tax return to the Finnish Tax Administration for its last financial year. In addition, it should apply to the Finnish Tax Administration for an amendment to its prepaid tax amount.

Take into account that the dissolution of a limited liability company may also have tax consequences to the company, to you personally and to other shareholders. Plan any solutions related to taxation carefully in advance.

Even if the company has been closed down, keep its accounts and financial statements for the time period determined in law.

The accounts should be kept for six years from the end of the year during which the last fiscal year has ended. The financial statements in turn should be kept for at least ten years from the end of the last fiscal year.

After the limited liability company has been closed down, cancel all insurance policies and other possible agreements connected to it.

Mandates from Suomi.fi e-Authorizations are required for taking different measures electronically. The liquidator should 

• find out who has mandates to act electronically on behalf of the company and whether these mandates are sufficient for carrying out transactions 
• find out what the instructions for the e-services of different parties say about acting on behalf of a terminated company (for example, see the Finnish Tax Administration’s instructions in MyTax.)
• familiarise themselves with the following instructions for Suomi.fi e-Authorizations: How does the cessation of activities affect the ability to act or authorise on behalf of an organisation?