Business Dissolution and Liquidation 1
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Questions and Answers

What is the main purpose of dissolution?

  • To sell all company assets
  • To expand the business
  • To close the business and settle tax accounts (correct)
  • To continue operations without tax liabilities

    • What is the primary responsibility of a liquidator?

  • To sell company assets and pay off debts (correct)
  • To acquire new assets for the company
  • To avoid liquidation
  • To expand the company's operations

    • What is the normal result of dissolution?

  • Liquidation (correct)
  • Acquisition
  • Expansion
  • Merger

    • When does voluntary or compulsory liquidation arise?

    <p>When directors ask shareholders to pass a resolution</p> Signup and view all the answers

    What is the ultimate decision-making authority in voluntary or compulsory liquidation?

    <p>Stakeholders with guidance from directors</p> Signup and view all the answers

    What is a ground for the court to order compulsory liquidation, other than insolvency?

    <p>Injustice and inequity</p> Signup and view all the answers

    What type of situation could lead to the compulsory liquidation of a company?

    <p>Inability to meet financial obligations</p> Signup and view all the answers

    In what scenario can the corporate veil be lifted for a company?

    <p>When the company operates more like a partnership based on mutual trust</p> Signup and view all the answers

    What must the board prepare to initiate the termination and liquidation of a company?

    <p>A statement confirming the company's financial situation and ability to pay off debts</p> Signup and view all the answers

    What happens if the prepared statement indicates insolvency?

    <p>The partners become jointly liable for any debt</p> Signup and view all the answers

    When can a company be terminated?

    <p>Expiration of the company's term, agreement of the partners, or a final court judgment</p> Signup and view all the answers

    What should partners do if the company is terminated and insolvent?

    <p>Prepare a previous statement and submit an application to the court for liquidation proceedings</p> Signup and view all the answers

    Who should remain in charge of management during liquidation until a liquidator is appointed?

    <p>Partners</p> Signup and view all the answers

    What role does the general assembly have during the liquidation period?

    <p>Limited to exercising non-conflicting functions</p> Signup and view all the answers

    How should the liquidation be carried out?

    <p>In accordance with provisions of the law, unless AOA and MOA provide otherwise</p> Signup and view all the answers

    How should a liquidator be appointed?

    <p>Based on a resolution of the partners, within 60 days of termination date, or by a court decision if a resolution cannot be reached.</p> Signup and view all the answers

    Under what circumstances can a judge order partners to submit necessary data before initiating liquidation?

    <p>When there are suspicions of misconduct or mismanagement</p> Signup and view all the answers

    Under what circumstances can the court order compulsory liquidation of a company?

    <p>If its affairs are being conducted oppressively to any member.</p> Signup and view all the answers

    What led to the third shareholder seeking liquidation of the company?

    <p>Being removed from the board by the other two shareholders.</p> Signup and view all the answers

    Why did the court consider the company to be more like a partnership?

    <p>Based on mutual trust.</p> Signup and view all the answers

    What must the board prepare to initiate the termination and liquidation of a company?

    <p>A statement confirming the company's financial situation and its ability to pay off debts.</p> Signup and view all the answers

    What should partners do if the company is terminated and insolvent?

    <p>Prepare the previous statement and submit an application to the court for liquidation proceedings.</p> Signup and view all the answers

    What role does the general assembly have during the liquidation period?

    <p>Limited to exercising non-conflicting functions.</p> Signup and view all the answers

    How should a liquidator be appointed?

    <p>Based on a resolution of the partners within 60 days of the termination date, or by a court decision if a resolution cannot be reached.</p> Signup and view all the answers

    Under what circumstances can a judge order partners to submit necessary data before initiating liquidation?

    <p>To prove the company's financial situation.</p> Signup and view all the answers

    When does voluntary or compulsory liquidation arise?

    <p>Expiration of the company's term, agreement of the partners, or a final court judgment.</p> Signup and view all the answers

    Who should remain in charge of management during liquidation until a liquidator is appointed?

    <p>The partners.</p> Signup and view all the answers

    What is the primary responsibility of a liquidator?

    <p>To carry out the liquidation in accordance with the provisions of the law, unless the AOA and MOA provide otherwise.</p> Signup and view all the answers

    What is the primary purpose of dissolution?

    <p>The primary purpose of dissolution is the closure of a business, often on voluntary terms of the owner, requiring the payment of all taxes and subsequent closure of tax accounts.</p> Signup and view all the answers

    What is the main responsibility of a liquidator?

    <p>The main responsibility of a liquidator is to sell all the company’s assets and pay off all the company’s debts to the creditors and members.</p> Signup and view all the answers

    What is the normal result of dissolution?

    <p>The normal result of dissolution is liquidation, which is the process by which a company’s existence is brought to an end.</p> Signup and view all the answers

    What is the role of a liquidator in the process of liquidation?

    <p>The role of a liquidator is to sell all the company’s assets and pay off all the company’s debts to the creditors and members.</p> Signup and view all the answers

    What are the types of liquidation mentioned in the text?

    <p>The types of liquidation mentioned are voluntary or compulsory liquidation.</p> Signup and view all the answers

    Under what circumstances can compulsory liquidation arise?

    <p>Compulsory liquidation can arise when the decision is taken from the stakeholders and placed in the hands of the court, where insolvency isn’t a prerequisite and injustice and inequity are also grounds for the court to order the compulsory liquidation.</p> Signup and view all the answers

    What is the ultimate decision-making authority in voluntary or compulsory liquidation?

    <p>The ultimate decision-making authority in voluntary or compulsory liquidation lies with the stakeholders, with the guidance of the directors for the best interest of the company.</p> Signup and view all the answers

    What happens during the liquidation period?

    <p>The company cannot operate any new obligation during the liquidation period, and the liquidator sells all the company’s assets and pays off all the company’s debts to the creditors and members.</p> Signup and view all the answers

    What is the process of bringing a company’s existence to an end called?

    <p>The process of bringing a company’s existence to an end is called liquidation.</p> Signup and view all the answers

    What are the grounds for a court to order compulsory liquidation, other than insolvency?

    <p>Other than insolvency, injustice and inequity are also grounds for the court to order compulsory liquidation.</p> Signup and view all the answers

    What is the decision-making process in voluntary liquidation?

    <p>In voluntary liquidation, the directors ask the shareholders to pass a resolution to liquidate, and the ultimate decision lies with the stakeholders, with the guidance of the directors for the best interest of the company.</p> Signup and view all the answers

    What is the decision-making process in compulsory liquidation?

    <p>In compulsory liquidation, the decision is taken from the stakeholders and placed in the hands of the court, often without insolvency as a prerequisite, and injustice and inequity are also grounds for the court to order the compulsory liquidation.</p> Signup and view all the answers

    Study Notes

    • The court may order compulsory liquidation of a company if its affairs are being conducted oppressively to any member.

    • A restaurant company was run by three shareholders, who had prior experience working together. Two shareholders removed the third shareholder from the board, leading to the third seeking liquidation of the company due to oppression and unfair treatment.

    • The court held that the company was more like a partnership based on mutual trust, so it was fair to lift the corporate veil and liquidate the company.

    • To terminate and liquidate a company, the board must prepare a statement confirming the company's financial situation and its ability to pay off debts.

    • If the statement indicates insolvency, the partners cannot dissolve the company and become jointly liable for any debt.

    • Reasons for termination include the expiration of the company's term, agreement of the partners, or a final court judgment.

    • Once the company is terminated, it must undergo liquidation and the partners should initiate liquidation procedures.

    • The partners should prepare the previous statement if the company is terminated and insolvent, and submit an application to the court for liquidation proceedings if assets are not sufficient to settle debts.

    • Partners should remain in charge of management during liquidation until a liquidator is appointed.

    • The company's general assembly should continue to exist during the liquidation period, but their role is limited to exercising non-conflicting functions.

    • The liquidation should be carried out in accordance with the provisions of the law, unless the AOA and MOA provide otherwise.

    • The liquidator should be appointed based on a resolution of the partners, within 60 days of the termination date, or by a court decision if a resolution cannot be reached.

    • The judge may order the partners to submit necessary data to prove the company's financial situation before initiating liquidation.

    • The liquidator should register their appointment with the commercial registration office to be effective toward third parties.

    • The liquidator can be removed in the same manner as their appointment, and the decision to remove them should include the appointment or replacement of the liquidator and their powers and fees.

    • The court may order compulsory liquidation of a company if its affairs are being conducted oppressively to any member.

    • A restaurant company was run by three shareholders, who had prior experience working together. Two shareholders removed the third shareholder from the board, leading to the third seeking liquidation of the company due to oppression and unfair treatment.

    • The court held that the company was more like a partnership based on mutual trust, so it was fair to lift the corporate veil and liquidate the company.

    • To terminate and liquidate a company, the board must prepare a statement confirming the company's financial situation and its ability to pay off debts.

    • If the statement indicates insolvency, the partners cannot dissolve the company and become jointly liable for any debt.

    • Reasons for termination include the expiration of the company's term, agreement of the partners, or a final court judgment.

    • Once the company is terminated, it must undergo liquidation and the partners should initiate liquidation procedures.

    • The partners should prepare the previous statement if the company is terminated and insolvent, and submit an application to the court for liquidation proceedings if assets are not sufficient to settle debts.

    • Partners should remain in charge of management during liquidation until a liquidator is appointed.

    • The company's general assembly should continue to exist during the liquidation period, but their role is limited to exercising non-conflicting functions.

    • The liquidation should be carried out in accordance with the provisions of the law, unless the AOA and MOA provide otherwise.

    • The liquidator should be appointed based on a resolution of the partners, within 60 days of the termination date, or by a court decision if a resolution cannot be reached.

    • The judge may order the partners to submit necessary data to prove the company's financial situation before initiating liquidation.

    • The liquidator should register their appointment with the commercial registration office to be effective toward third parties.

    • The liquidator can be removed in the same manner as their appointment, and the decision to remove them should include the appointment or replacement of the liquidator and their powers and fees.

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    Test your knowledge on business dissolution and liquidation with this quiz. Learn about the closure of a business, payment of taxes, and the process of liquidating a company's assets.

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