Liquidation of a general partnership is a process consisting in the termination of conducting business activity by a company. In this article, we discuss the specifics of a liquidation process.
Liquidation of a general partnership in compliance with/ according to the Polish Code of Commercial Companies
In Art. 58 of the Code of Commercial Companies in connection with Art. 67, Section 1 of the Code of Commercial Companies the legislator indicated the following reasons for a company’s liquidation:
- the reasons indicated in the company’s agreement;
- a unanimous resolution of all shareholders;
- a declaration of bankruptcy of the company;
- the death of the partner or declaration of his bankruptcy;
- termination of the company’s agreement by a partner or a creditor of a partner;
- final and legally binding court decision.
This means that if any of the abovementioned circumstances occur and the partners won’t take steps to maintain the company’s operations, the process of liquidation will be initiated. However, it is worth remembering that a liquidation proceeding is not obligatory in the case of the general partnership. The legislator enables the partners to avoid it and terminate the company’s activity in a different way, as agreed by the partners (Art. 67 § 1 of the Commercial Companies Code).
It should be emphasized that in a judicial doctrine and practice of registry courts, there are discrepancies as to whether, and if so, how this “another mode of bringing the operations of the partnership to an end” should be included in the company’s agreement. On the one hand, it is possible to point out that the other method should be indicated expressis verbis in the contract, and if there is no such method, the company’s agreement should be changed. On the other hand, there is a possibility of completely omitting the other method of a company’s termination in its agreement, leaving this issue to be regulated in the shareholders’ resolution.
Liquidation of a general partnership based on a unanimous resolution of the partners
Taking into consideration a number of reasons for a company’s liquidation, it is worth focusing on a solution that will ensure maximum savings in time and money. Therefore, in this article, we will discuss the termination of the company’s existence based on a unanimous resolution of the partners. In practice, this is the most common reason for dissolving a company.
The method indicated above offers two possibilities for the dissolution of a company. The first one is a dissolution without liquidation proceeding and the second one includes initiating the proceeding.
Method I – dissolution without liquidation
Dissolution of a company without liquidation definitely is the least time- and cost-consuming procedure. Additionally, from a business point of view, it enables terminating the cooperation of partners in the most arbitral manner.
In order to dissolve a company in this way, the consent of all the partners is necessary. Another crucial aspect is that there is no stipulation in the company’s agreement that strictly determines another method of its liquidation.
However, even if the contract specifies another procedure of liquidation, it is enough to change the company’s agreement, which does not require registration with the National Court Register for its validity and has legal consequences from the moment of its conclusion. Consequently, after the modifications of the agreement one can proceed further with the company’s liquidation. It is worth mentioning that a notarial deed is required to change the company’s agreement.
From a technical point of view, this method requires:
- a unanimous adoption by all partners of the resolution concerning dissolving a company, with regard to terminating its operations in a way other than liquidation
- appointing a person obliged to keep the company’s books and documents for a period of at least 5 years.
The unanimous decision of the partners that specifies the mode of terminating the company’s agreement may be included in the resolution on the company’s dissolution or in a separate document. When adopting a resolution on the company’s dissolution, partners must divide its assets. For example, partners may indicate the following circumstances as the company’s dissolution without its liquidation: a distribution of its assets in kind between the partners, or the company’s takeover by one of its partners with the obligation to pay the others off.
Advantages and disadvantages of dissolution of a general partnership without its liquidation
Liquidation of a general partnership in this mode has a lot of advantages. There is no need to rigidly follow a liquidation procedure, therefore, the company may be dissolved quickly. Moreover, there is no need to appoint a receiver, which means that the partners themselves have full control over the termination of the company’s operations. The commercial power of attorney, if it was established, also does not expire. There is no obligation to draw up a balance sheet at the date of opening and closing of the liquidation process. From the economic point of view, it is very important that there is a possibility of performing operations that go beyond liquidation activities. This is because partners may undertake actions that aim not only at the termination of the company’s existence but also at generating profit by the company. The fact that the company is not obliged to use the notation ‘in liquidation’ is also very helpful in achieving these goals.
The process of dissolving a company without its liquidation may therefore be conducted even in less than a week.
Method II – carrying out the liquidation procedure
Despite the advantages connected with the dissolution of a company without liquidation proceedings, there are situations in which it cannot be avoided. This will be the case especially when the company continues to conduct its advanced business activity, has numerous liabilities and/or obligations, has various assets and the partners are not able to find a common ground for a quick dissolution of the entity.
The liquidation procedure in this mode requires undertaking the following actions:
- adopting by all the partners a unanimous resolution in which they agree to dissolve a company, appoint liquidators (who may be either company’s partners or third parties), and appoint a person responsible for keeping the company’s books and documents for a period of at least 5 years
According to Art. 77 § 1 of the Code of Commercial Companies, the liquidators should close the current businesses of the partnership, collect the receivables, fulfil the obligations and liquidate the assets of the company. It is worth noting that due to the obligation to terminate the company’s current business, the liquidators should not undertake new economic ventures. This is allowed only to the extent necessary to finish the cases that are already in progress.
- reporting the opening of liquidation proceedings to the National Court Registe
- undertaking liquidation procedures by closing the company’s current businesses, collecting the receivables, paying debts off and liquidating the assets; if the company has undue or disputable liabilities, the liquidators should secure the appropriate amount to cover them,
- after the completion of liquidation procedures, the liquidators are obliged to report to the registry court the fact of finishing the liquidation procedure, together with the application for deleting the company from the National Court Register – the effect of dissolving the company takes place when the decision of the registry court to delete it comes into force.
It should also be remembered that on the day of starting and finishing the liquidation, it is necessary to prepare an opening and closing balance sheet. However, if the liquidation process lasts longer than a year, it is necessary to prepare financial statements for the day ending each financial year.
Advantages and disadvantages of liquidation of a general partnership
Terminating the existence of a general partnership in this manner is definitely more expensive, as it requires, for example, a payment for the notification of the opening and closing of liquidation proceeding to the court of registration. Due to numerous activities connected with the liquidation, it is also more time-consuming and may take – in the most optimistic variant- about half a year.
Dissolution of a company is effective from the moment of its removal from the register, which simultaneously means that it has a constitutive nature. At this point, the general partnership that is subject to liquidation loses its legal existence and ceases to be an entrepreneur. After removing the company from the register, the liquidators or partners should give the books and documents to the appointed person for safekeeping for a period of at least 5 years.