Closing down a company is a complicated project in itself. Due to the heavier control of the administrative burden in China, such projects are more complex, time consuming and costly in the country than other jurisdictions. Preparation is the key to successful liquidation. This exposition provides an overall picture of how to close down a company in China, its related procedures and common issues.
Reasons for closing down your business
It is important to keep in mind that liquidation does not always occur for negative reasons such as bankruptcy. A company may also seriously consider liquidation for strategic reasons.
1. Aresolution for dissolution is made at a meeting of a company’s shareholders.
2. A company is absorbed in a merger or has been separated from the controlling entity.
3. Expiration of business operations.
4. The business license has been revoked by the government / an order for closure has been issued or the business license has been ordered-to-be-closed or cancelled by the government in the public’s best interests due to determined legal violations.
5. A company undergoes financial difficulties and cannot anticipate transforming the business to deliver future profitability.
6. Force Majeure such as fire, natural disaster, warfare or changes in government regulations etc. enforce the liquidation of the company.
7. A company decides to relocate all or a division out of China to another country, to take advantage of: cheaper labour, a more relevantly skilled talent pool, a more supportive political environment etc. This may necessitate the company to liquidate all of their assets in China.
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Procedure of Liquidating a Company in China
Stage 1: Pre-Authorisation
1. Shareholders decide to liquidate Company;
2. Company selects a firm to assist with the process;
3. Preparation of related documentation;
4. Application for liquidation with the Bureau of Commerce and Administration of Industry & Commerce;
5. Formation of a Liquidation Commitee;
6. Pre-Liquidation Audit and compliance work completed.
Stage 2: Post-Authorisation
1. Public announcement issued in local newspapers;
2. Employees should be laid off;
3. Valuation and sale of company assets;
4. Creditors paid off;
5. Final Audit conducted.
Stage 3: Deregistration
1. Businesses trading, importing / exporting across borders must deregister from China Customs;
2. Deregistration from the local governing Tax Authority;
3. Destruction of company chops and seals.
Liquidating a company in China is a complex and challenging process that can take between 6-24 months, therefore professional advice and guidance should be sought when researching China liquidation.
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