Expert tips for controlled winding down of limited company

When a business owner retires, is hired by another company, the business becomes unprofitable or the owner’s health requires them to stop running the company, they are faced with a controlled wind down of the business.

Tiina Toivonen, Legal Affairs Manager at Suomen Yrittäjät, the Finnish SME association, says how a sole trader or limited company should be wound down.

In what kind of situations do business owners consider closing down or actually close down their companies?

“There could be many reasons behind the closing down of a business. For example, a business owner retires, is hired by another company, the business becomes unprofitable, or the owner’s health requires them to stop running the company.”

What preparations should be made for ending a business?

“A business owner should start preparing for closing their business in good time. They should stop making purchases in time and file VAT until the very end.”

What official steps need to be taken?

“No official procedure is needed to wind down a sole tradership. The sole trader files a notice of winding down with the Tax Administration and the Patent and Registration Office.”

Can a sole trader wind down their business if they have unpaid taxes?

“A sole trader must pay their debts before winding the business down. That means they must pay all the business’s bills. If a business has loans, they must be paid off or transferred before the sole trader submits the winding down notice.”

What does the law say about advertisements, webpages and phone numbers?

“Nothing. However, it is a good idea to analyse the contractual relationships the business has, and end them if necessary.”

How quickly can a sole tradership be wound down?

“Unlike a limited company, a sole trader can close their business down quickly.”

Can a business owner close their business down temporarily? What happens to YEL contributions or financial statements in that case?

“A sole trader can wind their business down until further notice. It can become a dormant company, one which legally exists but whose operations have been interrupted. A dormant company is removed from the VAT register and the advance withholding register. However, the interruption to business activities is not reported to the Trade Register, meaning the business ID remains valid. There is no barrier to ‘activating’ a dormant company. To do so, the business owner submits a form to the Tax Administration notifying it of continuation of business operations. If a business owner winds down business operations until further notice, even if they intend to restart them at some point, they can usually end their YEL pension insurance policy entirely. A business must file its financial statements with the Trade Register for each financial year, including when trading is suspended or has ceased.

Winding down a limited company may cost up to €10,000

How are closing down a limited company and a sole tradership different?

“Closing down a limited company is more complex, slower and often more expensive than closing down a sole tradership. An owner can withdraw from the business by selling their shares and ending their operations in the limited company.”

How does a limited company end its operations?

“Limited companies wind down via a liquidation procedure. Its purpose is to establish the state of the company’s assets, to convert the assets into cash, if necessary, to pay debts and surplus to shareholders. To enter a liquidation procedure, a company must have more assets than liabilities.”

How quickly can a limited company be wound down?

“The liquidation procedure lasts at least five months and has four stages. The first stage is registering the liquidation procedure and liquidator, then there’s applying for a public summons for creditors, then filing winding up of the company, and finally filing final settlement of the limited company. Applying for a public summons is compulsory, even if a limited company has no debts.”

How much does winding down a limited company cost?

“If the winding down of a limited company is handed over to a lawyer, it could cost over €10,000.”

Can a limited company be made dormant?

“The answer is the same as for a sole tradership. It can become a dormant company, one which legally exists but whose operations have been interrupted. A dormant company is removed from the VAT register and the advance withholding register. However, the interruption to business activities is not reported to the Trade Register, meaning the business ID remains valid. There is no barrier to ‘activating’ a dormant company. To do so, the business owner submits a form to the Tax Administration notifying it of continuation of business operations. A business must file its financial statements with the trade register for each financial year, including when trading is suspended or has ceased.

In what situation is bankruptcy relevant?

“Bankruptcy becomes relevant when the company is insolvent and unable to pay is debts when they fall due. Its options could be debt restructuring, or debt restructuring for business owners. In a bankruptcy, the company’s property is used to pay off creditors. Bankruptcy means transferring the company’s property to the creditors’ control.”