Dissolution of a dormant company

Why deal with an inactive company right now

If a company fails to submit financial statements for at least two consecutive accounting periods, the registry court may call on it to fulfil its obligation and, in the event of further non-compliance, impose a disciplinary fine of up to CZK 100,000. According to the Act on Accounting, there is also a risk of an administrative fine of up to 3% of the total asset value. The registry court may also, without a motion, initiate proceedings for the dissolution of the company with liquidation or even without liquidation.

The lawyers at the Prague-based law firm ARROWS deal with situations involving inactive companies daily and will help you find the fastest and safest way to terminate them. For an immediate solution to your situation, write to us at consultation@arws.cz.

What are your options for dissolving a dormant company

There are three basic ways to terminate the existence of an inactive company. Each has its own specifics, costs, and time requirements.

Voluntary dissolution with liquidation

The most common way to terminate a company is through voluntary liquidation, which begins with a decision by the partners or the General Meeting. The decision must be in the form of a notarial deed and requires the consent of at least a two-thirds majority of the votes of all partners. The company then enters into liquidation, during which all property relations are settled, debts to creditors are paid, and any remaining balance is distributed among the partners.

The minimum duration of liquidation is approximately 5 months, but on average, it takes one year. The process includes preparing financial statements, notifying creditors, publishing in the Commercial Bulletin, and a number of other steps required by law. The lawyers at ARROWS will help you carry out the entire liquidation process safely – we will take over the legal representation of the liquidator you appoint (e.g., the executive director), prepare all documents, and represent you before the notary and the court. Write to us at consultation@arws.cz.

Compulsory dissolution by court

If a company fails to fulfil its legal obligations, the court may decide on its compulsory dissolution. The grounds for compulsory dissolution under Section 172 of the Civil Code and Section 93 of the Business Corporations Act mainly include situations where the company:

• has not had a statutory body capable of passing resolutions for more than two years,

• is unable to carry out its activities for a period longer than 1 year,

• engages in illegal activities to such an extent that it seriously disrupts public order,

• fails to submit financial statements for at least two consecutive accounting periods.portal​

However, the court must first give the company a reasonable period to remedy the deficiencies. Only if the company fails to rectify its situation even after the summons can the court decide on dissolution with liquidation and appoint a liquidator. The ARROWS law firm can quickly remedy the situation in such cases and prevent a court-ordered dissolution – just contact us at consultation@arws.cz.

Dissolution of a company without liquidation

A faster and more efficient alternative is the dissolution of a company without liquidation, where the assets, rights, and liabilities are transferred to another entity. This method is particularly suitable for optimising a business structure or reducing administrative burdens. The options for dissolution without liquidation include:

Merger – a merger or consolidation with another company, where the original company ceases to exist and its assets are transferred to the successor company.

Transfer of assets to a sole partner – if the company has a single owner, all assets and liabilities can be transferred to them, and the company is subsequently deleted from the Commercial Register.

Division of the company – the original company is divided into several new entities, or part of its assets is transferred to existing companies.

Dissolution without liquidation requires thorough preparation of a project, a notarial deed, and registration in the Commercial Register. The ARROWS law firm has extensive experience with these transformations and will handle the entire process, including drafting the project, negotiating terms, and representing you before the notary – connect with us at consultation@arws.cz.

How much does company liquidation cost

The costs of company liquidation vary depending on the complexity of the case, the number of creditors, and the extent of the assets. For a standard company without complex liabilities, the following costs can be expected:

A notarial deed for the partners' decision costs CZK 3,000 – 6,000. Registering the liquidation in the Commercial Register requires a court fee of CZK 2,000. The announcement in the Commercial Bulletin, which must be published at least twice, costs CZK 1,000 – 2,500.

The liquidator's fee ranges from CZK 15,000 in simple cases to CZK 100,000 for complicated companies with assets and multiple creditors. Accounting and tax services during liquidation, including extraordinary financial statements and tax returns, amount to CZK 10,000 – 50,000. Deleting the company from the Commercial Register requires another court fee of CZK 2,000.

The total costs of liquidation therefore range between CZK 20,000 – 150,000. For companies without debts, average costs of CZK 25,000 – 35,000 can be expected. The legal services of a law firm for managing the entire liquidation process typically range from CZK 30,000 to CZK 50,000 excluding VAT.

The ARROWS law firm will provide comprehensive legal support for the entire liquidation, including preparing documentation, representation before the notary and court, and coordination with accountants and tax advisors – for a price quote, contact us at consultation@arws.cz.

How liquidation proceeds step by step

The liquidation process is precisely defined by law and requires adherence to a number of formal steps and deadlines. Failure to follow these procedures can lead to complications, fines, or even the rejection of the proposal to delete the company. Let's go through the individual phases of the process.

Preparatory phase before entering liquidation

Thorough preparation is necessary even before the decision to dissolve the company. The company should settle all liabilities, terminate lease agreements, cancel services, terminate employment contracts with employees, and sell remaining assets. This preparatory phase is key to a smooth liquidation process.

It is ideal to plan the entry into liquidation for the first day of the month, as the executive director must prepare an extraordinary financial statement as of the day preceding the entry into liquidation. Cooperation with an accountant or tax advisor is essential in this phase.

Decision on dissolution and appointment of a liquidator

The partners or the General Meeting decide on the dissolution of the company with liquidation in the form of a notarial deed. At the same time, a liquidator is appointed, who can be one of the partners, another natural person, or a legal entity. The liquidator assumes the powers of the statutory body and is responsible for managing the entire liquidation process.

The registration of the liquidation in the Commercial Register must be filed without undue delay, no later than 15 days from the decision on dissolution. From the moment of registration in the Commercial Register, the company is obliged to use its business name with the suffix "in liquidation".

The ARROWS law firm has more than 150 joint-stock companies and 250 limited liability companies in its portfolio, to which it provides long-term legal services, and thus has extensive experience in managing liquidations – write to us at consultation@arws.cz.

Preparation of accounting documents

As of the day preceding the entry into liquidation, the executive director is obliged to prepare an extraordinary financial statement and close the account books. As of the date the company enters liquidation, the liquidator prepares an opening balance sheet and an inventory of the company's assets. These documents form the basis for the liquidator's further work and must be prepared with the utmost care.

During the liquidation, regular accounting continues, and the company is obliged to prepare ordinary financial statements as of the balance sheet date until the liquidation is completed. The deadlines for filing tax returns are standard, i.e., no later than 3 months after the end of the tax period or 6 months if using the services of a tax advisor.

Notification to creditors and publication in the Commercial Bulletin

The liquidator is obliged to notify all known creditors of the company's entry into liquidation without undue delay. In addition, they must publish a notice of entry into liquidation in the Commercial Bulletin at least twice in a row with at least a two-week interval.

The notice must include a call for creditors to file their claims, stating a deadline that cannot be shorter than three months from the second publication. This deadline is a legal minimum and serves to protect creditors. Until this three-month period expires, the liquidation cannot proceed with further steps.

Settlement of claims and liabilities

After the three-month deadline for filing claims has expired, the liquidator proceeds to settle the company's property relations. The liquidator liquidates the company's assets and uses the proceeds to pay debts in the order prescribed by law.

The first group to be paid are the costs of liquidation, the second group are employee claims, and the third group are other creditors. If it is not possible to fully settle the claims in the same group, they are satisfied proportionally. Until the rights of all creditors who have filed their claims in time are satisfied, no share of the liquidation balance can be paid out, not even in the form of an advance.

If the liquidation estate is not sufficient to cover all debts, the liquidator will first satisfy the first and second groups from the partial proceeds and then offer the liquidation estate for takeover to all creditors. If all creditors refuse to take over the liquidation estate, it passes to the state.

Final report and distribution of the liquidation balance

After settling all liabilities, the liquidator prepares a final report on the course of the liquidation with a proposal for the distribution of the liquidation balance. On the same date, the liquidator prepares the financial statements. These documents are submitted for approval to the partners or the General Meeting of the company in liquidation.

The liquidation balance is distributed among the partners according to the ratio of their shares. If the partners had a contribution obligation, the liquidation balance is first used to satisfy the paid-up contributions, and the remainder is distributed according to the shares. The share in the liquidation balance is subject to a 15% withholding tax. The basis for the withholding tax is the liquidation balance reduced by the acquisition cost of the share.

The liquidator is obliged to pay out the share of the liquidation balance without undue delay after the approval of the distribution proposal. The liquidator is obliged to ensure the preservation of the final report, the proposal for the distribution of the liquidation balance, and the financial statements for a period of 10 years from the dissolution of the company.

The ARROWS law firm will provide complete legal support for the entire process, including the preparation of the final report, the proposal for the distribution of the liquidation balance, and tax optimisation – for a consultation, contact us at consultation@arws.cz.

Deletion of the company from the Commercial Register

The liquidator is obliged to file a proposal for the deletion of the company from the Commercial Register within 30 days of the end of the liquidation. The proposal must be accompanied by the final report, the financial statements, the accounting documents published in the Collection of Deeds, and documents proving the publication of the liquidation notice in the Commercial Bulletin.

A crucial condition for the deletion of the company is the consent of the tax office to the deletion under Section 238 of the Tax Code. The tax administrator must confirm that the company has no tax arrears. The tax administrator has 2 months to decide on the request; if they do not decide within the set period, it is deemed that consent has been granted. If the request is rejected, it can be repeated after 1 month.

The company legally ceases to exist upon its deletion from the Commercial Register. However, the partners remain liable for the company's debts even after its dissolution, up to the amount of their share in the liquidation balance.

Hidden complexities you don't know about

Although the liquidation procedure may seem clear at first glance, in practice, we encounter a number of situations that are not directly regulated by law or that require expert legal interpretation. For example, the question of how to proceed if a new creditor appears during the liquidation whom the liquidator could not have known about, or how to resolve a situation where the partners cannot approve the proposal for the distribution of the liquidation balance.

Further complications arise from the need to coordinate steps with accountants, tax advisors, archives, and tax offices. Each of these entities has its own requirements for documentation and deadlines. The lawyers at the Prague-based law firm ARROWS deal with these situations regularly and can save you months of time and thousands of crowns in fines for mistakes.

The ARROWS law firm is insured for damages up to CZK 500,000,000, which means maximum certainty for the client that the entire process will be handled professionally and safely. We also regularly partner with in-house lawyers to resolve special matters. For a consultation, write to us at consultation@arws.cz.

Liability of the executive director and the liquidator

The company's executive director and later the liquidator bear significant responsibility for the proper conduct of the liquidation. The liquidator is liable for damages caused to the company, partners, or creditors in the same way as the company's executive director. This is strict liability, which means that fault is not required for the damage to occur.

The executive director has a duty to perform their function with due managerial care. If they breach this duty, they must surrender any benefit from the performance of the function to the company and compensate for the damage caused. If the actions of the executive director or liquidator contribute to the company's insolvency, the court may decide to disqualify them from serving as a member of a statutory body in any business corporation for a period of up to 3 years.

Special attention must be paid to the executive director's duty to file an insolvency petition without undue delay after they learned or should have learned of the company's insolvency. Failure to file an insolvency petition leads to liability for damage or other harm caused to a creditor. The damage is objectively determined as the difference between the amount of the claim established in the insolvency proceedings and the amount the creditor received in the insolvency proceedings.

The ARROWS law firm provides legal advice to executive directors and liquidators on their duties and protects them from personal liability – for a consultation, contact us at consultation@arws.cz.

Alternative solution: Sale vs. liquidation

For many owners of inactive companies, the question arises whether it is more advantageous to sell the company or to liquidate it. Selling a company can be faster (even within one day of signing the share transfer agreement), but it carries specific risks.

The main advantage of a sale is the saving of time and money. Liquidation can be a financially demanding process with costs ranging from tens of thousands to hundreds of thousands of crowns, whereas you might even make money from a sale. The sale is completed the moment the share transfer agreement is signed, and all responsibility for the company is transferred to the new owner.

The main disadvantage of a sale is that your name will remain historically associated with the company. You will have no influence over what the new owner does with the company. Not everyone will know that you no longer own or manage the company. Moreover, finding a buyer can be a lengthy process, and you have to disclose valuable business information to every serious interested party.

When buying a ready-made company, the buyer faces the risk of taking over an entity with hidden liabilities, lawsuits, or other legal complications. Therefore, it is crucial to conduct a thorough legal audit of the company before its sale.

The ARROWS law firm will conduct a comprehensive legal audit of the company before the sale, ensure contractual protection against future claims, and help you find a suitable buyer – write to us at consultation@arws.cz. If you are looking for a buyer or investor for your company, we will be happy to connect you with our clients who are interested in acquisitions.

Conclusion: Leave the dissolution of the company to the experts

Dissolving an inactive company is a complex process that requires knowledge of many legal regulations, coordination with various authorities, and adherence to precise deadlines. Even the seemingly simple liquidation of an "empty" company hides a multitude of procedural details, connections to other regulations, and risks that a layperson often does not see.

The ARROWS law firm has extensive experience with the liquidation of companies of all sizes and types. Our portfolio includes more than 150 joint-stock companies and 250 limited liability companies to which we provide long-term legal services. We pride ourselves on the speed and high quality of the services we provide.

Thanks to the ARROWS International network, built over a decade, we can also provide legal services in cases with an international element, which we deal with on a virtually daily basis. If your company has property ties abroad or foreign partners, we have a solution ready for you.

Our law firm is insured for damages up to CZK 500,000,000, which means maximum security for you. If you have an inactive company that you need to dissolve, or if you are interested in investment or business opportunities related to your assets, we will be happy to listen to your needs and find the most suitable solution.

Do not hesitate to contact our office – consultation@arws.cz. We will help you carry out the entire company dissolution process safely and minimise your risks and costs.