The unstable legal environment and numerous business challenges make many entrepreneurs decide to liquidate their business. We discuss step by step how the liquidation of a general partnership looks like and what to keep in mind so that the entire process is carried out as quickly and smoothly as possible.
Dissolution vs. liquidation of a general partnership. What is the difference?
At the outset, it is worth noting that the concept of dissolution of the company should not be equated with its liquidation. This is indicated by Article 67 §1 of the Code of Commercial Partnerships and Companies, according to which in the cases specified in Article 58 of the Code of Commercial Partnerships and Companies, which contains the prerequisites for the dissolution of the company, the company must be liquidated, unless the partners have agreed on a different way to terminate its activities.
Fulfillment of even one of the prerequisites referred to in Article 58 of the Commercial Companies Code, as a rule, obliges the partners to initiate liquidation procedures, although this does not in itself lead to the deletion of the entity from the National Court Register. The legislator lists a number of reasons that lead to the dissolution of the company. Among them, the following should be mentioned first and foremost:
- reasons provided for in the agreement of the company (e.g., failure to achieve the established business goal within a certain period of time);
- unanimous resolution of all shareholders;
- declaration of bankruptcy of the company;
- the death of a shareholder or the declaration of his bankruptcy;
- termination of the partnership agreement by a partner or a creditor of the partner;
- a final court decision (if dissolution is requested by one of the partners for valid reasons).
While in most cases the partners can act autonomously, if the reason for dissolution is the declaration of bankruptcy of the company or the termination of the company’s contract by a creditor, the termination agreement requires the consent of the trustee or that creditor, respectively.
Liquidation of a general partnership in Poland – step-by-step procedure
The liquidation of a general partnership is carried out in a strictly structured manner. The sequence of individual actions should be followed by the partners to ensure a smooth liquidation. How does the liquidation of a general partnership proceed step by step?
Establishment of liquidators of a general partnership
The first stage of liquidation is the establishment of liquidators. As a rule, they are all shareholders, although there is no obstacle to this function being performed by only some of them or even by third parties unrelated to the company.
A resolution on the establishment of liquidators requires the unanimity of all shareholders, unless the general partnership agreement provides otherwise.
Liquidators may also be appointed by the court. This is possible for valid reasons at the request of a partner or other person with a legal interest in this, such as a creditor of the company. Valid reasons may include, for example, concern that the appointment of liquidators for all the partners or selected among them poses a risk of harming a creditor by, for example, giving preferential treatment to some of them or disposing of the company’s assets in order to reduce its ability to satisfy its current obligations.
The provisions of the Commercial Companies Code provide for the possibility of dismissal of the liquidator:
- in the case of liquidators appointed by the shareholders, a unanimous resolution of the shareholders is required, and for important reasons such a person may also be
- dismissed by the court;
- if liquidators are appointed by the court, only the court may dismiss them.
Report the liquidation of a general partnership to the court of registration
The company is required to report the opening of liquidation to the registry court, stating the names of the liquidators and their addresses for service and electronic addresses. The notification should also include how the company is represented. Each liquidator has the right and obligation to make the notification.
As a rule, all liquidators represent the company jointly, unless the shareholders or the court appointing the liquidators stipulated otherwise. They perform the function of a “board of directors” and are therefore authorized to both manage the company’s affairs and represent it. Limiting the powers of liquidators in a contract or resolution has no effect against third parties.
The assumption of the liquidators’ duty to deal with the company’s interests causes the established proxy to expire upon the opening of liquidation, and the shareholders have no option to appoint further proxies.
It is important to remember that already from the opening of liquidation the company is obliged to appear in the market under a name supplemented with the term “in liquidation”. In this way, the entity does not mislead other market participants.
A confirmation of the summons to creditors to report their claims should be attached to the notice of the registry court on the commencement of liquidation. Information on the commencement of liquidation shall also be sent by the shareholders to the tax office having jurisdiction over the company’s registered office.
Implementation of liquidation activities
Once the liquidation has been properly filed, the liquidators may proceed with the implementation of the activities aimed at ending the company’s business. The legislator defines them only in general terms, which is why it is so important to plan the liquidation of a general partnership carefully, taking into account both the type of business conducted, its scale and the structure of its assets and debts. While in the case of small businesses operating on the local market the liquidation activities may take a few weeks, in the case of companies with a cross-border scope the termination of operations can even take many months. Pursuant to Article 77 §1 of the Code of Commercial Companies. liquidation activities consist of:
- termination of the company’s current business;
- collection of debts;
- fulfillment of liabilities;
- liquidation of the company’s assets.
Termination of current interests may consist, for example, of gradually selling off goods, raw materials and semi-finished products, as well as taking steps to terminate contracts binding the company. As a rule, the company should not take on new business unless it is necessary to terminate its operations.
Debt collection seeks to recover the amounts due from debtors by all means permitted by law. In practice, this means that the company may not only issue calls for payment to counterparties, but also aim to collect debts in court or by filing an application for bailiff enforcement. As a rule, it is this stage of liquidation that is the most time-consuming.
Fulfillment of liabilities is primarily the payment of due salaries to business partners, but also to employees.
If there are any company assets left after the above-mentioned actions, the liquidators should secure amounts to cover unmatured or disputed liabilities. The remaining assets should be divided among the partners in accordance with the provisions of the agreement. If there are none, the shares contributed by the partners should be paid off, and the surplus should be divided according to the profit share.
If the partners have contributed items to the company for use, such as a car, IT equipment, such items shall be returned in kind.
What if the assets of a general partnership are insufficient to cover its liabilities?
In the course of liquidation, it may turn out that the company does not have sufficient funds to pay its debts and return its shares. In such a situation, the shortfall is divided among the partners, who will have to cover it according to the provisions of the agreement or the degree of their participation in the loss.
If the company’s debts are covered only by some of the partners due to the insolvency of the others, they may seek appropriate compensation under recourse claims.
Obligations of liquidators with regard to general partnership accounting
The provisions of the Commercial Companies Code require liquidators to prepare a liquidation balance sheet as of the start and end of liquidation. If the whole procedure lasts more than a year, the financial statements must be filed at the end of each fiscal year.
The details of the liquidation balance sheet are set forth in the Accounting Law, which mandates the closing of the books of account, and consequently entails the preparation of financial statements.
Liquidation of a general partnership and non-competition
It is worth mentioning that during the period of liquidation of a general partnership, the statutory prohibition of competition set forth in Article 56 of the Commercial Companies Code expires. According to this provision, no partner may, without the express or implied consent of the other partners, engage in interests that compete with the company. The initiation of liquidation transfers the prohibition of competition exclusively to the persons of the liquidators, who may or may not be partners.
In practice, this means that the partners cannot claim damages against each other and demand the surrender of the company’s benefits due to the conduct of competitive activities as long as they do not serve as liquidators.
Notification of the closing of the liquidation of a general partnership
Completion of liquidation should be reported to the registry court along with an application for its deletion, as well as a financial statement reflecting the company’s assets as of the date of its termination of business operations. This duty is incumbent on the liquidators, unless the dissolution is carried out without liquidation, in which case the application is filed by the shareholders. As a standard procedure, the petition should be filed within 7 days, along with a statement that liquidation has been carried out and completed.
However, the dissolution of the company occurs not upon filing, but only upon the issuance of a court order deleting the general partnership from the KRS. At that moment the company loses its legal personality.
It is worth remembering that the termination of liquidation does not need to be reported separately to the CSO and the tax office, as this information is provided automatically by the registry court.
According to Article 84 §3 of the Commercial Companies Code, the books and documents of a dissolved company must be given to a shareholder or a third party for safekeeping for a period of not less than 5 years. If the shareholder cannot agree on the appointment of the custodian, the registry court shall type it. Both the books and documents may be inspected during the period of their safekeeping by a shareholder or other person with a legal interest in them.
Dissolution of a general partnership without liquidation proceedings
The current legislation also provides for the dissolution of the company without liquidation. First of all, the general partnership agreement must provide for such a possibility. Shareholders may make any arrangements among themselves regarding the division of assets and the determination of liability for the company’s debts. It is necessary to maintain the legal form appropriate to the legal action – in the case of real estate, this will be a notarial deed. However, they are still jointly and severally liable to creditors.
In order to dissolve the company, it is necessary to pass a unanimous resolution in this regard. In its content, it is necessary to indicate the custodian of the company’s books and documents, as well as the place where they will be stored after the deletion of the general partnership.
The second stage of the procedure is the submission of an application for the deletion of the entity to the registry court, together with a resolution of the shareholders on the dissolution of the company without liquidation and the selection of the custodian of documents.
Using the simplified procedure is the optimal solution when the shareholders are in unison. In practice, the dissolution of the company in this mode takes less time, is simpler and, consequently, cheaper.
Who is liable for the debts of a liquidated general partnership?
It is worth remembering that the mere fact of deleting a general partnership from the National Court Register does not determine the expiration of the liability of the shareholders for its debts. This was pointed out, among others, by the Supreme Court in its resolution of September 4, 2009, III CZP 52/09. This ruling emphasized that the deletion of a general partnership from the Register of Entrepreneurs is not an obstacle to granting an enforcement clause against the shareholders under Article 778(1) of the Civil Procedure Code. All that matters is whether a person was a shareholder at the time the obligation covered by the enforcement order arose.