Legal risk response in the whole process of cancellation of limited liability company under the framework of the new Company Law

In today's business environment, with the increasingly fierce market competition, the cancellation of limited liability company has become a high-frequency topic. The implementation of the new company law puts forward more stringent requirements for the cancellation of the company, in this process, the company will face many legal risks. This paper will start from the perspective of the new company law, sort out the relevant risks, and put forward the corresponding preventive measures.

01.limited liability company cancellation overview

The deregistration of a limited liability company refers to the process in which the company, due to statutory or agreed reasons, goes through a series of legal procedures and finally applies to the registration authority for deregistration and terminates its legal personality. According to the Company Law of the People's Republic of China and relevant laws and regulations, the reasons for the cancellation of a limited liability company include but are not limited to: the expiration of the business term stipulated in the articles of association or the occurrence of the cause of dissolution, the resolution of the shareholders' meeting or the general meeting of shareholders to dissolve the company, the merger or division of the company, the revocation of the business license according to law, the order to close or the cancellation of the company.

Applicable law: Article 229 of the Company Law of the People's Republic of China (Amended in 2023)

The company is dissolved for the following reasons:

(1) the term of operation stipulated in the articles of association expires or other causes for dissolution stipulated in the articles of association occur;

(2) dissolution by resolution of the shareholders' meeting;

(3) The company needs to be dissolved due to merger or division;

(4) The business license is revoked, the business is ordered to close down or the business is revoked according to law;

(5) The people's court shall dissolve it in accordance with the provisions of Article 231 of this Law.

If the company has any cause for dissolution specified in the preceding paragraph, it shall publicize the cause of dissolution through the national enterprise credit information publicity system within 10 days.

02. Risk identification and response in the process of cancellation of limited liability company

Labor dispute risk

Before cancellation, the company needs to properly settle employees to avoid labor disputes. If the company fails to properly address employee issues prior to deregistration, employee complaints, labor arbitration, or legal proceedings may arise that will hinder the company's deregistration process.

Therefore, before cancellation, the company should properly settle employees to avoid labor disputes. For example, the company should pay employees' wages, benefits and other expenses in accordance with relevant laws and regulations, and handle social insurance and other procedures for employees. For employees who are laid off, the company shall make economic compensation and resettlement in accordance with legal procedures. At the same time, the company should also strengthen communication and consultation with employees to ensure that employees understand the company's cancellation decision and have no objections to the company's cancellation settlement plan.

Applicable law: Article 17 of the Company Law of the People's Republic of China (Revised in 2023)

The employees of the company shall organize trade unions in accordance with the Trade Union Law of the People's Republic of China, carry out trade union activities, and safeguard the legitimate rights and interests of the employees. The company shall provide necessary conditions for the activities of its trade union. The trade union of the Company shall, on behalf of the employees, sign a collective contract with the Company in accordance with law on matters such as labor remuneration, working hours, rest and vacation, labor safety and health, insurance and welfare, etc.

The Company shall, in accordance with the provisions of the Constitution and relevant laws, establish and improve a democratic management system with the workers' congress as the basic form, and practice democratic management through the workers' congress or other forms.

When a company studies and decides on restructuring, dissolution, application for bankruptcy, major issues related to business operation, and formulations important rules and regulations, it shall listen to the opinions of the company's trade union, and listen to the opinions and suggestions of the workers and workers through the workers' congress or other forms.

Labor Contract Law of the People's Republic of China (2012 Amendment) Article 44

Under any of the following circumstances, the labor contract shall be terminated:

(1) Expiration of the labor contract;

(2) workers begin to enjoy basic old-age insurance benefits according to law;

(3) The laborer is dead, or has been declared dead or missing by a people's court;

(4) The employing unit is declared bankrupt according to law;

(5) The business license of the employing unit is revoked, the employing unit is ordered to close down or be revoked, or the employing unit decides to dissolve in advance;

(6) Other circumstances provided for by laws and administrative regulations.

Article 46 Under any of the following circumstances, the employing unit shall pay economic compensation to the laborer:

(1) The laborer rescinds the labor contract in accordance with Article 38 of this Law;

(2) where the employing unit, in accordance with the provisions of Article 36 of this Law, proposes to terminate the labor contract to the worker and terminates the labor contract through consultation with the worker;

(3) The employing unit rescinds the labor contract in accordance with the provisions of Article 40 of this Law;

(4) The employing unit rescinds the labor contract in accordance with the provisions of paragraph 1 of Article 41 of this Law;

(5) Terminating a labor contract with a fixed term in accordance with paragraph 1 of Article 44 of this Law, except where the employer maintains or increases the conditions stipulated in the labor contract and the labor contract is renewed, and the laborer does not agree to the renewal;

(6) Termination of the labor contract in accordance with the provisions of subparagraphs 4 and 5 of Article 44 of this Law;

(7) Other circumstances provided for by laws and administrative regulations.

Article 47 Economic compensation shall be paid to a laborer on the basis of the number of years he has worked in the unit and one month's wage for each full year. If it is not less than six months but not more than one year, it shall be counted as one year; If the period is less than six months, economic compensation of half a month's wages shall be paid to the laborer.

Where the monthly wage of a laborer is three times higher than the average monthly wage of an employee in the previous year in the locality as announced by the people's government of the municipality directly under the Central government or the city divided into districts where the employing unit is located, the standard for payment of economic compensation shall be the amount of three times the average monthly wage of the employee, and the maximum period of payment of economic compensation shall not exceed twelve years.

The term "monthly wage" as used in this article refers to the average wage of the laborer in the 12 months prior to the rescission or termination of the labor contract.

Tax risk

Before the company cancels its industrial and commercial registration, it also needs to carry out tax cancellation registration and go through the formalities of Tax Cancellation registration. The complexity of the tax write-off also increases the difficulty and cost of the company's cancellation. If the company has unpaid taxes or tax violations, it may face tax penalties in addition to the need to pay taxes, which will also affect the process of the company's cancellation.

In the process of cancellation, the company shall go through the formalities of tax cancellation registration in accordance with the requirements of the tax authorities, truthfully declare the tax situation of the company, actively communicate and negotiate with the tax authorities on the tax problems existing in the company, properly handle them according to the requirements of the tax authorities, and improve the efficiency of tax cancellation.

Program failure risk

When handling industrial and commercial cancellation, it is necessary to submit relevant materials to the Industrial and Commercial Bureau, including liquidation reports. If the company has unresolved legal proceedings or unfulfilled contracts and other matters, it may lead to the industrial and Commercial Bureau not to handle the cancellation procedures of the company. In addition, if the company fails to operate in accordance with the prescribed procedures during the deregistration process, the deregistration may also fail or be revoked.

Before the company applies for cancellation of registration, it must go through legal liquidation procedures, including verification of claims and repayment, preparation of liquidation reports, etc. Before preparing for cancellation, the company can provide professional advice on the company's cancellation procedures and liquidation procedures by consulting lawyers to ensure that the company's cancellation procedures are carried out in an orderly and effective manner.

Legal risk after cancellation

After the cancellation of the company, its subject qualification in the legal sense will be eliminated. However, if the company has illegal acts or fails to fulfill legal obligations during the cancellation process, it may lead to the relevant responsible subjects (such as shareholders, directors, supervisors, etc.) to bear legal liabilities. For example, shareholders who fail to perform their liquidation obligations in accordance with the law in the process of company cancellation may be liable for false liquidation. In addition, the Company law clearly stipulates that before a company applies for cancellation of registration, it must go through legal liquidation procedures to verify claims and pay them off. If the company fails to accurately identify and pay off all its debts before the cancellation, but still completes the registration cancellation, the creditors will be entitled to claim compensation liability against the shareholders or members of the liquidation team after discovering that the company is cancelled. In practice, some companies choose to cancel the company in order to escape the debt maliciously. In this case, creditors can claim joint and several settlement liability against the liquidator according to the commitment of the relevant obligor to break through the limited liability of the debt company.

In this regard, in the process of preparing the cancellation materials, the company should conduct a comprehensive assessment of its debt situation. Verify the company's creditor's rights and debts by consulting books, contracts and other documents. For outstanding debts, the company shall actively negotiate a solution with creditors to ensure that all debts are properly handled before cancellation and avoid more complicated disputes during or after cancellation.

Applicable law: Article 232 of the Company Law of the People's Republic of China (Amended in 2023)

If a company is dissolved due to the provisions of subparagraphs 1, 2, 4 and 5 of Paragraph 1 of Article 229 of this Law, it shall be liquidated. The directors, who are the liquidation obligors of the company, shall form a liquidation team to carry out liquidation within 15 days from the date of occurrence of the cause of dissolution.

The liquidation group shall be composed of directors, except as otherwise provided in the articles of association of the company or unless the shareholders' meeting decides to elect others.

If the liquidation obligor fails to perform the liquidation obligation in time and causes losses to the company or creditors, it shall be liable for compensation.

Application of law: The Company Law of the People's Republic of China (Revised in 2023) Article 233 Where a company shall liquidate in accordance with the provisions of the first paragraph of the preceding article, and if a liquidation group is not established within the time limit for liquidation or is not liquidated after the formation of a liquidation group, the interested parties may apply to the People's Court to appoint relevant personnel to form a liquidation group for liquidation. The people's court shall accept the application and organize the liquidation team to carry out liquidation in a timely manner.

Where a company is dissolved due to the provisions of paragraph 1 (4) of Article 229 of this Law, the department or the company registration authority that has made the decision to revoke its business license, order closure or cancel it may apply to the people's court to appoint relevant personnel to form a liquidation team to carry out liquidation.

Article 236 After liquidating the company's assets and preparing the balance sheet and list of assets, the liquidation group shall work out a liquidation plan and submit it to the shareholders' meeting or the people's court for confirmation.

The remaining property of the company after the payment of liquidation expenses, employees' wages, social insurance expenses and legal compensation, the payment of taxes owed and the repayment of company debts shall be distributed in proportion to the capital contribution of the shareholders of a limited liability company and in proportion to the shares held by the shareholders of a joint stock limited company.

During the liquidation period, the company shall continue to exist, but shall not carry out any business activities unrelated to the liquidation. The property of the company shall not be distributed to the shareholders before it has been paid off in accordance with the provisions of the preceding paragraph.

Article 238 Members of the liquidation group shall, in performing their duties of liquidation, have duties of loyalty and diligence.

If any member of the liquidation group fails to perform his liquidation duties and causes losses to the company, he shall be liable for compensation; Where losses are caused to the creditor due to intent or gross negligence, the creditor shall be liable for compensation.

Article 239 After the liquidation of a company, the liquidation group shall prepare a liquidation report, submit it to the shareholders' meeting or the people's court for confirmation, and submit it to the company registration authority to apply for cancellation of the company registration.

03.For the general cancellation of the company

Risk prevention mechanism

Through a comprehensive assessment of the debt situation, strict implementation of liquidation procedures, and proper handling of tax and employee affairs, the company can be targeted to prevent the above specific legal risks in the cancellation process. However, the cancellation of a limited liability company is a complex and cumbersome process involving multiple legal links and stakeholders, and the risks listed above cannot cover all the risks of the company during the cancellation process. The company should establish and improve the general risk prevention mechanism for the cancellation affairs to lay a solid foundation for the orderly withdrawal of the company.

Strengthen internal communication and collaboration

During the cancellation process, an efficient communication mechanism should be established between various departments within the company to ensure the smooth flow of information. The financial department should work closely with the legal department, human resources department and other departments to jointly sort out the company's financial status, debt situation and employee placement plan, and form a joint force to deal with the cancellation challenge. Through team cooperation, problems can be discovered and solved in a timely manner to avoid risks caused by omissions or misoperations.

Detailed liquidation work plan

Liquidation is the core of the cancellation of a limited liability company. The Company shall formulate a detailed liquidation work plan, specifying liquidation objectives, steps, schedules and responsible persons. The plan should cover all aspects such as asset inventory, debt verification, creditor's rights settlement, property distribution, etc., and fully consider possible special situations and countermeasures. Through the detailed plan, it can ensure that the liquidation work is carried out in an orderly manner and reduce operational errors and legal risks.

Strengthen communication with regulators

In the process of cancellation, the company should take the initiative to maintain close contact with the municipal regulatory Bureau, the tax bureau and other regulatory agencies to understand the cancellation policy, process and requirements in a timely manner. For the problems and difficulties encountered in the process of cancellation, the company should actively seek guidance and help from the regulator. By strengthening communication with regulators, the company can more accurately grasp the cancellation progress and key points, and ensure that the cancellation work meets the requirements of laws and regulations.

Pay attention to changes in the legal environment

The legal environment is an important factor that cannot be ignored in the process of company cancellation. The Company shall pay close attention to the changes in laws and regulations and policy adjustments related to the cancellation, and timely adjust the cancellation strategy and plan; At the same time, we should also strengthen the ability to predict and prevent legal risks, and ensure that we can respond quickly and take effective measures when the legal environment changes.

Retain relevant evidentiary materials

During the entire process of preparing and implementing a deregistration, many documents are used and produced, which may play a key role in any subsequent legal disputes. Therefore, even if the company decides to cancel, it should establish a sound file management system to ensure the integrity and traceability of all evidentiary materials.

Applicable law: Article 109 of the Company Law of the People's Republic of China (Revised in 2023)

A joint stock limited company shall keep its articles of association, the register of shareholders, minutes of meetings of shareholders, minutes of meetings of the board of directors, minutes of meetings of the board of supervisors, financial and accounting reports and the register of bondholders in the company.

04. Conclusion

With the continuous development of the market economy and the continuous improvement of laws and regulations, the external environment has increasingly strict requirements for the company's compliance. Under this background, the company needs to uphold a rigorous attitude, strengthen its internal management and risk control capabilities, strictly abide by the requirements of laws and regulations during the cancellation process, and prevent legal risks in the future. Of course, for small and medium-sized companies, it is more efficient to consult professional lawyers and hire lawyers to provide representation services before preparing for cancellation. Professional corporate lawyers can assist the company to analyze the problems that may be encountered in the cancellation process and tailor legal and compliant solutions for the company. Through the professional guidance and help of lawyers, it can not only ensure the smooth completion of the cancellation of the company, but also significantly reduce other legal risks after the cancellation.