How can you close a business?

A company can terminate its business voluntarily or compulsorily. In all cases except bankruptcy, the liquidation of the company is implemented. 

When a company is no longer able to meet its obligations or is insolvent, it can initiate the procedure for compulsory composition and/or also bankruptcy. With a successful compulsory composition procedure, a company may continue its operations, while the bankruptcy procedure means that the company terminates its operations.

Companies decide to end trading for various reasons. These are insolvency, a merger with another company, upon the expiry of the period for which the company was established or upon the owner's retirement.

A company can terminate its business voluntarily or compulsorily. The time of termination and closure depends on the legal and organisational form of the company.

Company liquidation

If reasons for liquidation emerge, the company's property has to be cashed in, debts with creditors have to be settled, and the remaining company assets that are available to pay creditors are then distributed among the company members. MORE+

Termination of a company by summary procedure

In small companies, many owners decide to terminate by summary procedure, which is initiated by the owners themselves and a notary.

In these cases, owners acquire the rights and obligations that arise from the closure of their business (signing of statements at a notary at the beginning of the procedure). MORE+

Compulsory composition

Compulsory composition is an insolvency procedure intended to prevent bankruptcy, and is executed under court supervision.

The purpose of the compulsory composition procedure is to retain the legal entity – debtor; therefore, this is an agreement on the reduction of liabilities to creditors or the prolongation of the period for the payment of liabilities to creditors; in the case of bankruptcy, the procedure is intended to repay creditors and liquidate the legal entity.

There are several types of compulsory composition. The most frequent is an agreement with creditors on the further operations of the legal entity and partial settlement and partial suspension of debts, and usually also on a reduction of obligations. It is possible to suspend liabilities to suppliers. Debt can also be transformed into shares.

Company bankruptcy

Company bankruptcy is performed when a debtor is insolvent or in debt for an extended period. The bankruptcy procedure is not executed if the debtor has only one creditor, or if the company is a sheltered workshop.  The bankruptcy procedure is proposed by creditors, the debtor or a personally liable company member.

Prior to, and during, the initiation of the bankruptcy procedure, an insolvent or indebted debtor can propose to the creditors the conclusion of a compulsory composition.

A bankruptcy procedure is not executed if the debtor's property which would apply as bankruptcy estate does not suffice to cover the costs of the bankruptcy procedure or if the property's value is insignificant.

Termination of a sole trader (s.p.)

A sole trader wishing to terminate operations is obliged by the Companies Act to announce at least three months prior to the registration of termination of activities (by sending letters to creditors, in public media, in business premises) that operations will be terminated; the sole trader also has to indicate the date of termination. MORE+