One of the frequent requests to legal consultants is to support the office closing on a turnkey basis. As a rule, in this case, the company has a need to completely liquidate a subsidiary or its division in a certain city.

Cases when it is relevant:

1. The participants/shareholders decided to close the company
2. The company is undergoing restructuring, during which one of the group companies is subject to liquidation
3. The company closes its branch/representative office/other separate division in another city
4. The participants/shareholders decided to "transfer" the company to another country

There can be a great many reasons for closing in the first case. But most often it is decrease in the profitability of a business or, in a neglected situation, its pre-default state. In this short article, we do not consider default cases and bankruptcy proceedings.


The second case is usually related to internal processes in a group of companies. Some employees often receive offers to transfer to other companies or to another area.


The third case is somewhat different from all the others, since there is practically no corporate element of closure (there is no liquidation as such, but it may be required to change the Articles of Association and make amendments to the Unified State Register of Legal Entities¹, as well as de-register with the tax authority, sometimes with the Social Fund of Russia. The details depend on the type of unit and whether it was registered accordingly).


The fourth case is common in Europe (changing the domicile of a company with a parallel change of tax residence), but it is impossible in such a complete form in Russia. In fact, we are talking about the standard liquidation and opening of a company in another country with the transfer of some employees, assets and liabilities to it.

According to the prerequisites, it is more or less clear. The list is not limited, we have given only the typical ones. It is more interesting to consider the process of closing an office itself. It includes several elements that influence each other. Sometimes delay in the process in one element can significantly shift the deadlines or freeze another element.


So, here are the elements:

1. Corporate aspects of closing
2. Work with personnel
3. Termination of office lease
4. Reporting, reconciliation and de-registration

The process of voluntary liquidation takes in average 3-6 months, although in rare cases it can take up to one year. You should be prepared before starting liquidation.

Namely:

• Carry out checks with contractors and government agencies, make sure that there are no accounts payable and no (or minimal) accounts receivable
• Check that bookkeeping and tax accounting are kept correctly, there are no debts on reports, there are no fines and arrears
• Make sure that the term of lease contract is sufficient for the liquidation period.
• In fact, you usually do not need the office anymore, but you need to have a legal address where correspondence will arrive, as well as the opportunity to receive an inspector during an on-site inspection (although they are very rare for "white" companies).
• Check that you have access to your bank account, there are no blocks and restrictions
• Select a liquidator and a liquidation commission (if necessary, if provided for by the Articles of Association).
• It is recommended to appoint a director as a liquidator, since they are aware of all the company's affairs and will be able to provide explanations on the actual circumstances of the activities (if requested by government agencies).
• In general, please note that in terms of labor costs liquidation is no longer working with third parties (creditors, debtors, etc.), but constant interaction with various government agencies in order to be removed from their register, having passed many internal regulations.
• Determine the list of employees for forced layoffs (excluding those who are transferred to other companies).

When the answers to the above questions are received, a formal liquidation process can be started.
It is usually conducted by a lawyer, the steps are as follows:

• Preparation of documents to start liquidation
• Preparation of a message for the Federal Resource about the beginning of liquidation
• Publication of State Registration in the Bulletin
• Preparation of documents for registration of the interim liquidation balance sheet
• Closing of a bank account
• Preparation of documents for registration of the liquidation
• De-registration with the SFR

This approximate algorithm is applicable to LLC.

The algorithm will be different in case of closure of a branch/representative office/other separate division. For example, if you close a division that was not registered with the SFR, the process will be as simple as possible – it is enough to de-register with the Federal Tax Service, as well as make changes to the Articles of Association and the Unified State Register of Legal Entities (if necessary).

The process looks the most difficult when closing a branch or representative office of a foreign company. In this case, the actions are similar to complete liquidation, but without official publications in the Federal Resource and Bulletin.

If, based on the results of the preliminary analysis, you see employees who will have to be fired, you need to work out various dismissal scenarios.

Experienced lawyers usually work out an algorithm of actions taking into account two grounds for dismissal:
layoff (or liquidation, depending on the synchronicity of the processes with the corporate element of liquidation)² and the agreement of the parties³.

The choice of the first ground is explained by its unilateral action, it is considered as a backup option if it is not possible to come to an agreement. Its main advantage is that, provided lawyer's good training and high-quality work, the employee will be fired 2-3 months after the notification of layoff/liquidation is handed over.

The period of 2 or 3 months depends on the availability of the criterion of mass dismissal⁴, and on the willingness of the employer to take the risk of a fine for not notifying the employment center⁵. As is often the case in business, compliance with all aspects of formal procedures is not always beneficial, and the amount of cumulative savings can be much higher than the amount of the fine. The choice of the parties' agreement option is explained by a faster process (you can conclude it at any time and agree on any date of dismissal), low risks of contestation, as well as flexible terms of conclusion (the amount of compensation is determined by the parties independently).

As a rule, a number of factors affect the amount of compensation, but perhaps the most important is the negotiation strategy and the experience of the lawyer who holds meetings with employees. The lawyer's work in this process is not limited to documents, they are the main driver of the process and the main negotiator.

Another big block of questions is related to how to give up the office. As a rule, an office as such is no longer needed for the liquidation procedure. That's why the following questions arise: a) what to do with the office property b) how to return the office to the landlord.

The first issue is usually solved by selling property to employees at a large discount off the market price. Personal equipment is snapped up quickly (laptops, headsets, etc.), but, employees are reluctant to take, for example, office furniture. However, if you explain to them the opportunity to make money on resale, then this furniture is quickly snatched away too. Selling property on your own is a long and more expensive process for the company. As for the termination of the lease, this issue is quite sensitive.

The thing is that business real estate lease agreements are usually long-term and do not have special terms and conditions on the tenant's right to terminate the them unilaterally. The law also does not provide for such a possibility, unless there were violations of the agreement on the part of the landlord⁶. Thus, it turns out that the issue of early termination of a long-term lease agreement is resolved only through negotiations.

It is recommended to involve lawyers in negotiations, but the essence of the negotiations is likely to come to discussing the amount of the tenant's severance payment (the amount of the payment that the tenant will pay for early termination of the agreement). The amount of the payment depends on the set of conditions, but the main one is how many months of rent are left before the expiration of the lease, whether there was a deposit, whether the tenant has candidates for office rent.

In prestigious and popular business centers, there is often a queue of tenants, so landlords do not cling to existing tenants too much and willingly go for early termination, being content with a small severance fee. But if the business center is not popular and there is a risk of not renting it out, then it will be much more difficult to terminate the agreement.

The liquidation procedure, as well as the closure of a branch or representative office of a foreign company, requires regular bookkeeping and tax accounting until the company is de-registered with the Federal Tax Service and the Social Fund of Russia. But in addition, it is necessary to submit special liquidation reporting forms.

Using the example of LLC on the general taxation system, one can name the following list of reports:

• "Personalized information on individuals" Report
• EFS-1 (sections Incoming Earnings Information-Labor Activities, Incoming Earnings Information-Employment Period, 4-FSS (Social Insurance Fund))
• Calculation of insurance premiums
• 6-NDFL (Personal Income Tax) Report with appendix 2
• VAT and income tax returns
• Interim balance sheet
• Liquidation balance sheet
• Report according to statistical forms

The frequency and number of reports depend on the scheduling of the company's closing process. In addition to reporting during liquidation, the accountant accompanies desk audits, provides explanations to the FTS and the SFR, together with a tax lawyer provides explanations to requests from government agencies.

It is important that a qualified employee does this, because otherwise the liquidation process may be delayed, and this increases the cost of maintaining the company. If the liquidation period is more than a year, you will have to start it all over again⁷. In addition, providing answers without the necessary expertise may entail recalculating the amount of taxes, contributions, arrears, imposing of fines and penalties.

Thus, the process of closing an office, regardless of the details of specific legal procedures, is not the easiest process. It combines elements and requires expertise in the field of corporate, contractual, tax, labor law, as well as the participation of a qualified accounting professional. Let alone the need to negotiate with employees and the landlord.

Nevertheless, the algorithm of work is known in advance, and the experience of such projects makes it possible to conduct them comprehensively and in a short time.

SberSolutions is a company that specializes in business support in the areas of legal work and accounting. We have extensive experience in both opening various companies in a wide variety of industries and closing their offices. We support such projects comprehensively, with minimal customer participation (of course, it will be required to determine key positions in negotiations and on commercial issues, but experts conduct regulated procedures independently).