A sudden Covid-19 pandemic in 2020 brought a crisis on the global economy. Many companies felt difficult to operate, and the owners had to make a decision whether closing the company or not. The failure right now is not the end, but to learn from it, and restart one day in the future.
In fact, closing a company is not a simple thing. Different decisions are suitable for different situations. We will talk about more details below.
Before deciding to close the company, you need to consider whether you want to close the company permanently or just for a few years. Some directors actually want to suspend operations for a few years, and then restart after this period. If this is the case, you have two options.
Carry on a company
The first is that you can choose to continue carry on this company. Under the premise that the company has suspended all business activities, you can file as zero on GST and Income Tax Return every year, i.e. nil return. This option is suitable when you only want the company to suspend business for 1 to 2 years, because using this method you can continue to keep the company on IRD and Companies Office (please note that the company still has to complete the tax return and annual return every year). Doing this way not only avoids the complicated procedures and costs of deregistering the company, but also allows you to easily restart after two years.
Business non-active
The second option is Non-active company declaration (IR433). This method is more suitable when you want the company to suspend operations for about 3 to 5 years. Unlike carry on the company, you do not need to file tax returns to IRD every year during the closing period. Also, the company’s previous losses and assets will continue to be retained, which can be used after the company restarts. But you still need to submit the annual return to the Companies Office every year, otherwise the company will be forced to remove, which will incur high costs when applying to re-registration. It should be noted that during the closing period, the company cannot have any transactions to generate income, cannot provide employee benefits to any employees or former employees, and cannot have shareholder dividends. When restarting business in the future, it is necessary to submit a Non-active company reactivation (IR434) to IRD for reusing the original IRD number.
Although the above two methods still have some work to do every year and some expenses generating, the advantage is that you can keep your company name on Companies Office and will not be registered by others. When you restart your business within a few years, you will get started more quickly, saving you the complicated work of re-registering your company.
However, there are also many companies that are really difficult to operate. They are basically determined to close permanently, or are expected to be closed for at least 5 years. The future situation is uncertain, so they will choose to close and wind up. At this time, the option is Voluntary deregistration.
Voluntary deregistration
Voluntary deregistration of a company means that the company is removed from Companies Office on a voluntary basis, rather than being forced to remove due to liquidation or failure to perform its obligations under Companies Act 1993.
The point you need to concern is that the deregistration of the company is based on the financial year. As long as the company has any business activities within a financial year, even if it has only been in business for a month, or there are still assets in the company’s name, you have to wait until the next financial year to deregister the company. For example, the company ceased operations in mid-May 2020. Since there are still business activities in the two months of April and May 2020, you cannot deregister the company in the 2021 financial year but have to wait until the 2022 financial year to do that. It is still necessary to complete the financial statements for the 2021 financial year and file income tax return.
During the period from mid-May 2020 to March 31, 2021, what you need to do is:
Close bank account;
Clear all accounts receivables and payables;
Clear all inventory;
Clear all fixed assets;
Paid all taxes owed to IRD;
Cancel GST registration and employer registration;
Ensure that the information in Companies Office is up-to-date;
If the company has any retained earnings, it must be distributed through shareholder dividends.
After completing the above preparations and completing the income tax return for 2021 financial year after March 31, 2021, you can begin to apply for voluntary deregistration.
Since the voluntary deregistration of a company is an important decision, the company’s shareholders are required to make a special resolution, or in accordance with the company constitution, the board of directors to approve that. In addition, you also need to inform IRD of this decision and obtain a “No objection letter” from IRD, indicating that IRD has no objection to the company being removed. After that, you can apply for voluntary deregistration at Companies Office.
If Companies Office does not receive any public objection against removing of the company after 20 working days, the company will be removed from the record and all procedures will be completed.
When you close the company through voluntary deregistration, you will no longer have to worry about any tax issues with the closed company. As you can see, voluntary deregistration of a company is a very complicated and time-consuming process. You need to contact various agencies such as IRD and Companies Office to complete the process. At the same time, you need to plan the time for deregistering and the preparations in advance. Therefore, it is highly recommended to seek professional advice for help.
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