What to do if you are an individual entrepreneur (hereinafter referred also to as “sole proprietor” or “IE”) or have registered a company, foundation or non-governmental organization (NGO) and decide to stop your activity?
In our previous publications, we referred to the legal regulation of being registered as an individual entrepreneur and conducting business activities through the establishment of commercial companies.
Within the framework of this article, we will have a broader understanding of how a person (persons) who owns a sole proprietorship or has registered a commercial or non-commercial company can close a business or sole proprietorship within the framework of RA legislation.
First of all, it should be noted that compared with the termination of the activities of companies registered within the RA legislation, the sole proprietor(s) can suspend his (their) business activities in a much simpler way.
How to Close a Business or Sole Proprietorship Business?
Who can apply for closing a sole proprietorship?
For this process, the agency of the State Register of Legal Entities of the Ministry of Justice of the Republic of Armenia (hereinafter referred to as the “Agency”) can be applied for by both the individual entrepreneur personally and the person authorized by him.
What documents must be submitted for closing a sole proprietorship business?
The following documents are submitted to the Agency:
- Application,
- In case of submitting an application by an authorized person, a corresponding power of attorney and identity document of the authorized person are also submitted.
How can we help?
If you want to close a business and have decided to stop your profit or non-profit activity and/or close the sole proprietorship, our legal team is ready to provide professional legal guidance!
What are the regulations if the sole proprietor has died or is declared missing?
The deregistration of a deceased IE is carried out automatically by receiving that information in the order of mutual assistance from the state administration body managing the relevant information base – the RA Civil Residence Acts Registration Agency (CRA), in accordance with the procedure established by the Government of the Republic of Armenia.
Deregistration of missing IE is carried out according to the application of the interested person, for which any information sufficient for the identification of the person registered as an individual entrepreneur and a copy of the court decision on recognizing him as an unknown absentee are submitted.
Are there any additional requirements in case of closing a sole proprietorship if the latter has employees?
Yes. If the individual entrepreneur was registered before 2013, then in the case its closing, the Agency must also submit a certificate of compliance with the requirements of Article 20, Part 6 of the RA Law “On Archival Affairs”, according to which, in case of closing an IE, the individual entrepreneur organizes separating and handing over the documents related to the employees to the state or community archives, which were generated by its activity until January 1, 2013.
How long does the process take?
A sole proprietorship is considered closed (deregistered) from the moment of submitting the application.
Is there a state fee in case of closure of an individual entrepreneur?
There is no state fee for closing a sole proprietorship.
Moving forward, we should note that according to the Civil Code of the RA, legal entities can be profit organizations: commercial companies (LLC, CJSC, OJSC) or non-profit organizations: non-commercial companies (foundations, NGOs).
The activity of a legal entity ceases upon its dissolution, in which case succession does not occur. That is why, the legislator has provided a special process for the closing of a legal entity, which ensures that all creditors are informed about that situation and submit their claims to the legal entity.
How to Close a Profit Organization
Who carries out the process of dissolution of commercial companies?
State registration of dissolution is performed by the Agency, except for cases of dissolution of legal entities registered by the RA Central Bank (banks, credit organizations, insurance companies, investment foundations, etc.), for whose dissolution a completely different procedure is provided.
Who makes the decision about the closure of commercial companies?
Only the general meeting of a company (both LLC and OJSC/CJSC) can decide on dissolution, including appointing the dissolution committee and approving the dissolution balance sheet. The authority to make these decisions cannot be delegated to the company’s board or executive bodies.
Commercial companies can also be dissolved by court order.
How is the actual process of dissolution of commercial companies carried out?
According to the provisions of Article 69 of the Civil Code of the Republic of Armenia, the body that made the decision on the dissolution of the company appoints a dissolution committee (liquidator) and defines the order and terms of dissolution. From the moment of appointment, the powers of managing the affairs of the legal entity pass to the dissolution committee. The dissolution committee posts an announcement on the official website of RA public notices about its dissolution, the procedure and deadline for submitting creditors’ claims. That period cannot be less than two months from the moment of notifying the dissolution.
The dissolution committee takes measures to identify the creditors and collect the receivables, and also informs the creditors about the dissolution of the legal entity.
After the expiration of the deadline for submission of claims by creditors, the dissolution committee draws up an interim dissolution balance sheet. The latter contains information about the composition of the dissolved legal entity’s property, the list of claims submitted by creditors, as well as the results of the consideration of claims. If the dissolved legal entity’s foundations are insufficient to satisfy creditors’ claims, the dissolution committee sells the legal entity’s property at public auctions.
In what order are the claims of the company’s creditors satisfied?
Article 70 of the RA Civil Code stipulates that in case of dissolution of a legal entity, the claims of its creditors are satisfied in the following order:
- The claims of creditors with obligations secured by the property of the dissolving legal entity are satisfied;
- The demands of those citizens, before whom the dissolved legal entity bears responsibility for causing damage to their life or health, are satisfied through the capitalization of appropriate periodic payments;
- The severance benefits, salary and author’s contract remuneration of the persons working under the employment contract are paid;
- The debt of mandatory payments to the budget, environment protection foundation is repaid;
- Settlements are made with the rest of the creditors, except for creditors with subordinate loans;
- Settlements are made with creditors with subordinated loans.
The requirements of each turn are met after the requirements of the previous turn have been fully met.
If the value of the dissolved legal entity’s property is insufficient to satisfy the creditors’ claims, it can be liquidated only as a result of bankruptcy.
What happens when all creditors’ claims are satisfied?
After completing settlements with creditors, the dissolution committee draws up a dissolution balance sheet, which is approved by the meeting.
When is a commercial company considered dissolved?
The dissolution committee submits the approved dissolution balance sheet along with other documents to the Agency for state registration of the company’s closure. A legal entity is considered dissolved, and its existence ceased, from the moment of state registration.
How to Close a Non-Profit Organization
The provisions of Articles 69 and 70 of the RA Civil Code also apply to foundations and NGOs, but the process of liquidation of the latter differs in a number of features.
What are the features of the foundation dissolution process?
According to the Law of the RA “On Foundations”, compared to the liquidation of IEs and commercial companies, a decision to dissolve a foundation can only be made by the court at the request of interested persons.
Who decides to apply to the court for liquidation on behalf of the foundation?
The board of trustees of the foundation decides to apply to the court for dissolution of the foundation. This authority is exclusive and cannot be transferred to another body by statute.
What happens when the foundation no longer has obligations to creditors?
Once creditors’ demands are met and the foundation’s capital remains intact, its property goes to donors based on their contributions, capped at the donation amount. If donation reimbursement isn’t feasible, the funds go to the state budget, while other assets transfer to the Armenian Government.
The Process of NGO Dissolution
The decision on voluntary liquidation of the NGO is made by the meeting.
Moreover, according to the RA Law “On NGOs”, the State Revenue Committee may apply to the court for the forced liquidation of the organization in the cases provided for by the same law, for example, the organization has carried out an act of violently subverting the constitutional order or inciting hatred or promoting violence or war during its activity.
The organization is dissolved in accordance with the procedure established by the Civil Code of the Republic of Armenia (Civil Code of the Republic of Armenia, Article 67-70), which has already been discussed when referring to the dissolution process of commercial companies.
In the case of closing an organization, after meeting the demands of creditors, the remaining property is directed to the goals provided by the organization’s charter, in case of its impossibility, the foundations are transferred to the state budget, and other property is transferred to the Republic of Armenia, represented by the Government, with the right of ownership, except for cases specified by law.
Partner With the Industry Leaders!
If you want to stop your business activity and have decided to dissolve your profit or non-profit organization and/or close the sole proprietorship, our legal team can assist you!
How can we help?
- Advice on how to close a business;
- Insertion of the dissolution announcement on the official website of RA public notices;
- Preparation of necessary documents for dissolution, including interim dissolution balance sheet, final dissolution balance sheet,
- Representation in the relevant state bodies, including the Agency of the State Register of Legal Entities of the Ministry of Justice of the Republic of Armenia, in court and in front of account operators,
- Conducting further negotiations with creditors.
