Liquidation brings an end to a business entity. The duty to complete administrative processes does not stop and should be complete before liquidation is finalised.
The liquidation process starts with the owner making the decision to liquidate (unless a creditor of course brings a liquidation application against the business). In the writer’s experience, the financials of the entity and tax returns are seldom up to date when a business reaches the stage of liquidation.
When there is an imminent liquidation, one does not want to spend money on accounting costs if it can be avoided. So the question is what administrative processes must be finalised and which not if there is a liquidation.
This article gives a guide to these processes but must not be understood to be an exhaustive list or the the alpha and omega. Each liquidation must be dealt with on merit.
All income tax, PAYE, UIF and VAT returns must be lodged up to date. Unfortunately, one cannot lodge income tax returns without doing the financials, but although SARS is not too worried about a liquidation, it is very adamant that tax returns must be lodged up to date. In the light of the fact that a director/member can be held liable if the tax returns are not lodged, it is important to lodge the returns. Figures does not have to be 100% exact, but of course should be in line with the bank statements. What the writer means is, at the late stage just before a liquidation one does not want to spend a lot of monies on accounting fees, but unfortunately it is important to hand in the tax returns.
If, in the liquidation the owner is continuing with business in another entity, the new service agreements for the new entity should be in order before liquidation. It is best to bring UIF records up to date, as the staff member will need these to be able to collect income after liquidation if unemployed. Also, issue IRP 5’s so that the staff members can proceed with their own tax issues.
Ensure that all registration documentation is available.
If there is a property which is being used, pay rates and taxes (even though one is not legally obliged to in a liquidation – but if the rates and taxes are not paid, the electricity will be cut off – even though the municipality is not allowed to do this. Of course, it depends of the financial situation of the entity that is being liquidated. If the property is not going to be used after liquidation, then these debts become part of the liquidation and does not have to be paid.
Registration documentation of the company/close corporation and in the case of a company, we will need the share certificates. Keep those handy as we will ask for it if we handle the liquidation.
Identity document of director(s) or member(s).
Ascertain for how much of the debt the director(s)/member(s) signed surety so that we can consult on the personal position of the person as well.
The above will assist in making the liquidation process smoother so that the client is not inconvenienced.
The liquidation process is not always black and white. With our experience we will be able to advise fully on the details of a liquidation and how we can help the client to continue with the business after liquidation.
Article written by Nanika Prinsloo of Prinsloo & Associates Attorneys. Email firstname.lastname@example.org.
Cell 072 8558 106. Website www.empowerlaw.co.za