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Company Liquidation in UAE
In the UAE, company liquidation, also known as “winding up” or “closing” a business, is the official procedure for shutting down a business. This process involves selling all of the company’s assets and using the proceeds to settle any outstanding debts and expenses. After fulfilling these financial obligations, any remaining funds are distributed among the company’s shareholders.
During liquidation, the business ceases its operations and terminates its employment contracts. The company’s business license is revoked, and its name is removed from the Trade Registry. Consequently, the government recognizes the company as no longer in existence.
Company Liquidation in Dubai
In the UAE, a company may undergo liquidation for two primary reasons:
- The company has achieved its initial objectives and is no longer needed.
- The company is insolvent.
Even if there are no outstanding debts, it is essential for a company that is no longer needed to be formally liquidated. Failing to properly liquidate the trade license can lead to serious repercussions.
Non-compliance with regulations during the liquidation process can result in several penalties. Additionally, the UAE government may blacklist the company, its directors, and its shareholders. This can adversely affect their involvement in other businesses and may even prevent them from starting new ventures in the future.
The company liquidation process can be influenced by three main factors:
- The type of ownership.
- The type of liquidation.
- The jurisdiction of registration, whether in Mainland UAE or a Free Zone.
Type of Ownership
The first step in winding up a sole establishment or proprietorship is to apply for the cancellation of the business license through the relevant Department of Economic Development. Additionally, it is crucial to obtain the necessary permits from relevant authorities, such as:
– Ministry of Human Resources and Emiratisation
– Directorate of Residency and Foreigners Affairs
– The relevant water and electricity authorities
– The leasing entity
If your business is structured as a General Partnership, Limited Liability Company, Simple Limited Partnership, Public Joint Stock Company, or Private Joint Stock Company, it is mandatory to appoint a liquidator.
Type of Liquidation in UAE
The formal procedure for ceasing a company’s operations, known as company liquidation, can be conducted either voluntarily or through compulsory measures.
- Voluntary Company Liquidations:
Shareholders of a financially stable company can choose to voluntarily liquidate it. Likewise, directors of an insolvent company can decide to close down operations and liquidate its assets to pay off creditors.
- Compulsory Company Liquidations:
If a company fails to pay its debts within the specified timeframe, creditors can petition the court to mandate its liquidation. In such cases, the court can enforce the liquidation process, requiring the company to sell its assets to settle the outstanding debts.
The formal procedure for ceasing a company’s operations, known as company liquidation, can be conducted either voluntarily or through compulsory measures.
- Voluntary Company Liquidations:
Shareholders of a financially stable company can choose to voluntarily liquidate it. Likewise, directors of an insolvent company can decide to close down operations and liquidate its assets to pay off creditors.
- Compulsory Company Liquidations:
If a company fails to pay its debts within the specified timeframe, creditors can petition the court to mandate its liquidation. In such cases, the court can enforce the liquidation process, requiring the company to sell its assets to settle the outstanding debts.
Jurisdiction of registration
In the UAE Free Zones, appointing a company liquidator is not always mandatory when dissolving a business. The specific procedures for closing a Free Zone Company vary according to the regulations of the Free Zone Authority where the business is registered.
To begin the closure process, it is essential to inform the relevant Free Zone Authority in advance. The authority will then publish a liquidation notice. Business owners must obtain No Objection Certificates (NOCs) from utility service providers and other relevant government or Free Zone departments as required.
Following the approval of the necessary documents, business owners should proceed with canceling staff visas and work permits, and closing bank accounts. The final step involves receiving a formal termination letter from the Free Zone Authority, which signifies the completion of the company closure process.
Square International Auditing & Advisory stands out as a leading liquidation company in Dubai, providing comprehensive professional company liquidation services across Dubai, Abu Dhabi, offshore businesses, Free Zone businesses, and other areas within the UAE. Their team of liquidators ensures a seamless and efficient process for closing businesses.
Process of Company Liquidation in UAE
The formal process of company liquidation in the UAE involves several key steps:
- Preparation and Approval of Shareholders’ Resolution for Dissolution: Shareholders must draft and approve a resolution for the company’s dissolution. For Limited Liability Companies (LLCs) registered in the UAE, this resolution must be notarized by a Notary Public. If shareholders are not physically present in the UAE, the resolution must be notarized and then attested by the UAE Ministry of Foreign Affairs and the Ministry of Justice at the relevant UAE embassy. Most Free Zone companies require their documents to be notarized by a Notary Public.
- Appointment of a Liquidator: A liquidator must be appointed, and a formal acceptance letter from the liquidator is required.
- Submission of the Shareholders’ Resolution: The shareholders’ resolution, along with necessary documents and fees, must be submitted to the appropriate licensing authority. Required documents include a copy of the company’s Trade Licence, Memorandum of Association, Powers of Attorney (if applicable), and copies of passports or Emirates IDs for all partners, owners, and shareholders. A deregistration application form is also needed.
- Publication of a Notice of Liquidation: Upon receiving a provisional liquidation certificate, the business must publish a notice of liquidation in a publicly accessible publication, in both English and Arabic. The number of required notices varies by authority but typically ranges from two to four.
- Notice Period: A notice period of up to 45 days may be required, depending on the registration jurisdiction. During this period, the following actions must be taken:
– Cancel all work permits and visas for employees and partners.
– Obtain clearance letters from the Immigration Department, Labour Department, utility companies (water, electricity, and telecom services), leasing entity or landlord, Road & Transport Authority (RTA) if there are registered vehicles, and the Federal Customs Authority (FCA).
– Close the company’s bank account and obtain a closure letter.
– Complete VAT deregistration and obtain a VAT clearance letter from the Federal Tax Authority (FTA).
- Completion of Liquidation: After the notice period expires, the appointed liquidator will prepare the Liquidation Report. This report, along with all necessary supporting documents, must be submitted to the competent Authority. Upon reviewing the application and receiving the required cancellation fees, the Authority will issue a “License Cancellation Certificate” if the application is approved.
Documents Required for Company Liquidation in UAE
When winding up a company in Dubai, specific documents must be prepared as required by the Dubai government. Here is a list of the essential documents needed for the company liquidation process in Dubai:
– Power of Attorney (if applicable)
– Copy of the business license
– De-registration application form
– Shareholders’ resolution
– Copy of Emirates ID
– Copies of all shareholders’ passports
– Copy of the Memorandum of Association (MOA), including any amendments
Company Liquidation Services in UAE
Liquidating a company can be a lengthy and expensive process, as it involves coordinating with numerous external parties and organizations to ensure all steps are completed accurately and on time. Any oversight or missing documents can lead to unnecessary delays and complications.
The introduction of Value Added Tax (VAT), Economic Substance Regulations (ESR), and Ultimate Beneficial Ownership (UBO) regulations has added complexity to the company liquidation process in the United Arab Emirates in recent years. Consequently, companies must approach the winding-up process with increased caution and precision.
Square International provides comprehensive company liquidation services in the UAE for all types of entities, including LLCs, free zone businesses, and offshore companies. Our services range from full support throughout the liquidation process to assistance with specific steps, tailored to meet the needs of our clients. Please contact us for more information about our liquidation service.