Dissolution without liquidation

What it means

Dissolution without liquidation is a way a trading company ceases to exist in which all its assets, liabilities, contracts and other rights and obligations pass to a legal successor. Since nothing is left to distribute among the shareholders or to settle with creditors, no liquidation takes place.

Typical cases are a merger by absorption, where the dissolving company is absorbed into an existing successor, an amalgamation, where two firms form a new one, and a division, where the assets are split among several successors. The company ceases to exist on the day of its deletion from the Commercial Register.

These cases must be distinguished from a change of legal form, in which the company does not cease to exist but only changes its form. In a dissolution without liquidation, the shareholders’ decisions and the merger, amalgamation or division plan must take the form of a notarial record, and the plan is published before approval.

How it works in practice

In a merger we agree with the client on the decisive date from which the dissolving company’s transactions are accounted for on the successor’s behalf. As of the day before it we prepare the dissolving firm’s extraordinary financial statements, and the successor opens its books with the balances taken over.

On the tax side we decide whether the assets are taken over at book values or at fair values with an impact on the tax base, and whether the successor can continue to carry forward the dissolving firm’s tax loss. The law allows this only under certain conditions, so we check the plan before it is signed.

After registration we arrange the cancellation of the dissolving firm’s VAT and other tax registrations, the final returns, and the transfer of contracts, bank accounts and employees to the successor. For employees, the rules on the transfer of rights and obligations from employment relationships apply.

What to watch out for

Creditors of both the dissolving and the successor company may demand security for their claims if the merger would make them harder to recover. This is often forgotten in intra-group mergers, and a creditor who comes forward late can delay or complicate the process.

Dissolution without liquidation is not a way to get rid of an over-indebted company without dealing with its debts. If the dissolving company is loss-making with large liabilities, the tax office and the court examine whether the merger was purpose-built. For a firm that no longer has assets or activity, liquidation or another solution is needed.