Establishing and running a business in Dubai brings several opportunities for growth. However, some deliberate decisions may lead to terminating the operations and shutting down the business. The process of company liquidation in Dubai may seem a bit complicated, especially with the involvement of a series of guidelines, but a structured approach can ensure a smooth exit for the business.
Through this article, we will provide a detailed overview of the company liquidation process, highlighting the types of liquidation, the steps involved, and most importantly, outsourcing company liquidation services in Dubai to make the process much easier and convenient.
Understanding company liquidation in Dubai
Company liquidation, often termed as ‘winding up’ or ‘closing’ a company, is a legal procedure where a company discontinues its affairs, distributes its assets, and ultimately dissolves the business entity. The accumulated money is further used to pay off debts, and cover expenses, and the remaining amount is distributed to the company shareholders.
Business owners can decide to liquidate their company for various reasons such as financial difficulties, inability to pay debts, expiry of the company’s duration, a deliberate choice by the shareholders, or a legal obligation. Whatever the reason, business owners must ensure to follow the legal rules and guidelines while carrying out company liquidation in Dubai.
Factors of company liquidation in Dubai, UAE
Business Liquidation is typically influenced by three factors:
- Type of Ownership
- Type of Liquidation
- The Jurisdiction of Registration
1. Type of Ownership
The primary step in winding up a company in Dubai is applying for the cancellation of the business license. Hence, the business owner must secure the required permits from the relevant authorities including MoHRE, GDRFA, Municipality, and others.
Businesses in the following legal form must appoint a liquidator for the liquidation process:-
- General Partnership
- Limited Liability Company
- Simple Limited Partnership
- Public Joint Stock Company
- Private Joint Stock Company
2. Type of Liquidation
The UAE law has categorized company liquidation into two kinds, depending on the legal form and location of the company:
Voluntary Liquidation:
- When the shareholders together decide to shut down the company for various reasons, such as the fulfillment of the original purpose of starting the company, bankruptcy, financial difficulties, etc.
- To liquidate the company voluntarily, the shareholders must appoint a liquidator and follow the procedures for the business license cancellation and making announcements for liquidation in local publications.
Compulsory Liquidation:
- When a company fails to pay its debts on time or commits a serious offense, the creditors may request the court to liquidate the company to recover their debts.
- The courts then order the company to shut down its operations and appoint a liquidator to oversee the liquidation process.
Since different rules and procedures apply to the mainland and free zones, the type of liquidation will depend on where the company is registered.
3. Jurisdiction of Registration
Businesses operating in Free Zones do not need to appoint a company liquidator to dissolve the business. The procedures involved in the liquidation process depend on the rules and regulations set forth by the specific authorities where the company is registered. Hence, the business owner must notify the relevant free zone authority in advance to initiate the liquidation process. While the authority publishes a liquidation notice, the business owner gets No Objection Certificates (NOCs) from utility service providers and other pertinent departments as required.
Once all the documents have been authorized, the business owner will cancel the staff visas and work permits and close all bank accounts. The authorities will then issue a formal termination letter, marking the completion of the company closure procedure.
Reasons for company liquidation in Dubai
There are two primary reasons for company liquidation in Dubai:
- Fulfillment of purpose – When the initial purpose or objective of company formation in Dubai is fulfilled or is no longer significant, liquidation is required. This may be due to changes in the market, the completion of certain projects, or the rearrangement of company priorities.
- Insolvency – In events where the company cannot pay its debts and becomes insolvent, creditors may recommend liquidation to receive their share from the remaining company assets. Some of the common reasons for insolvency may be economic declines, unforeseen liabilities, and poor financial management.
Company liquidation process: A systematic approach
The UAE corporate law has outlined a series of well-defined steps for
