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Procedures for Liquidating a Company in China

Updated:2018-5-22 15:48:09    Source:www.tannet-group.comViews:215

China Company Liquidation (WFOE)
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Procedures for liquidating a company in China is a complex and often long lasting process. Liquidation is the process by which a company is brought to an end, which is sometimes referred to as winding-up or dissolution.The procedure for shutting down a WFOE in China is subject to formal procedures and regulations, which means that you cannot simply abandon your company.

Chinese law requires for all corporations, foreign or domestic, that a formal deregistration procedure be followed, in which a formal liquidation of the company is of great significance. Failure to comply with existing regulations might result in severe legal consequences for shareholders.

Major reasons for liquidating a WFOE
(1) Terms of operations expire;
(2) The WFOE has to be dissolved due to financial difficulties;
(3) The company is unable to continue business operations because of external forces such as natural disaster and war;
(4) The WFOE is terminated by the government. Examples include illegal acts or acts damaging the public interest;
(5) The WFOE is closed due to a merger;
(6) Any other reasons specified in the Articles of Association of the WFOE occur.

Key steps for WFOE liquidation
The following are the most important procedures when liquidating a WFOE in China:
Step 1: Notify the relevant authorities;
Step 2: Organize a liquidation committee;
Step 3: Announce publicly that the WOFE will be resolved;
Step 4: Submit liquidation report;
Step 5: Deregister with relevant authorities and close bank account.

Though liquidation can be used to equitably extinguish the debts of normal creditors, it is impossible to formally liquidate a company if taxes and fees are owed or if employee salaries have not been paid. The government agencies normally treat taxes, fees and salaries as obligations that cannot be extinguished through liquidation. For this reason, any company considering liquidation should first ensure that taxes, government fees and employee salaries are paid in priority to other obligations of the company.

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