If you don’t use the business entity to generate income, or for the purpose of serving a community or group interest, and you find that the annual submissions to CIPC and SARS are simply not worth your time, then you may want to deregister the business. As part of the process, you will liquidate it to ensure that there will not be creditors down the line claiming that you still owe them money. In addition, it will close the record at SARS. As such, it is just good business sense to deregister or liquidate the business. However, that is not the main concern for most business owners. If you want an answer to the question of why to go into liquidation, read on.

Liabilities Exceed Assets

According to the requirements of the Insolvency Act, a business cannot keep trading if its liabilities exceed its assets. If the business has debts of six months or longer in arrears, then clearly the business cannot meet its obligations. In this instance, the business must be liquidated. If you thus still wonder why it is a good idea to go into liquidation, consider the potential judgments against the business by creditors. A creditor can also apply for compulsory liquidation of the company. The problem here is that in such an instance, you will not have time to register another business entity to keep on trading and thus save the jobs of your employees.

With voluntary liquidation, you maintain some control and have time to help employees find suitable employment if you don’t intend to trade under another business entity. Note that your business doesn’t need assets to go into liquidation. But a word of caution – if you signed surety for the business on any debt, then you will be responsible for settling the debt if the business is unable to do so. It means you can also lose your assets in the process. In addition, the law provides that should it be found that the business became insolvent because of your gross negligence in managing it, you can be held accountable in person for the debts. This means that you may also face sequestration and the potential loss of your home.

What is Important?

If the business is in financial trouble, don’t wait for creditors to take judgment or to apply for compulsory liquidation of the company. Apply for business rescue, find investors, and restructure operations to improve profitability and income. If you have gone through all the steps in saving the business and paying the debt owed, but still find that the business is in trouble, then apply for liquidation. If the business entity doesn’t have any real assets that can be sold to ensure benefit to the creditors, then most likely the creditors will not apply for compulsory liquidation.

Does the Business Entity Owe SARS Money?

If your business owes SARS a substantial amount and is unable to make good on the debt, then by law the business must be liquidated. However, it is possible to apply for a tax compromise in which SARS writes off part of the taxes owed and you get to make an arrangement for paying the outstanding amount. In this instance, SARS will review how many employees will be without work, what the impact on the economy will be, and what future taxes they lose if they liquidate the company. If through the tax compromise SARS is able to get most of the money owed, or benefit from future taxes, then they may consider the tax compromise to be a better option.

Do You Want the Business to Go Into Liquidation?

If you have answered yes, then the next step is to make use of our professional legal services to help you avoid costly pitfalls with the liquidation process.