Ask the law: What is the procedure to close an LLC company?

Question

I’m a manager and partner in an Limited Liability Company (LLC). We want to close the company as our licence is going to expire next month. Do we need to appoint auditors? One partner is outside the country due to a personal loan problem and may not be able to come back, in this case do we still have the right to go ahead with the cancellation without his visa being cancelled? Can we all leave and not close the company? Do we hold responsibility? What cases lead to a termination of a company, can we go for liquidation in case the company is declared bankrupt and what is the process?

Answer

You must cancel your business licence and all related permits associated with it when you decide to close a company. It’s important for relevant government entities to know that you are no longer in business to stop you from accumulating fines and penalties on your licence when it is not renewed upon expiry. If you’re in a shareholding company, it’s important to discharge your liabilities towards creditors and partners and protect your interests and shares. There are two basic types of company liquidation, voluntary and compulsory, which can be requested by shareholders or creditors. Steps and procedures for cancelling an LLC company, according to Federal Law No.2 of 2015, article 306 to 326, states a company can be dissolved for the following reasons; expiry of its duration, completion of its objective, loss of all or most of its assets.

For the dissolution of the company to be effected, in case the share capital of an LLC is half, directors must put the matter of dissolution before a general meeting. In case losses amount to more than half of the capital, partners who hold a fourth of the capital may request dissolution.

Liquidation can be carried out by one or more liquidators to be appointed by partners or the general meeting approved by the majority by which the company’s decisions are taken.

A notice of dissolution is entered in the commercial register and two Arabic newspapers.

The company has a legal personality only up until required by the liquidation process and it thereby required that the name of the company should carry the suffix ‘under liquidation’.

A company can also be terminated due to it being declared bankrupt.

Bankruptcy and composition with creditors are separately governed by detailed provisions of the Commercial Transactions Law.

New bankruptcy law in the UAE is a complete legal framework meant to assist financially troubled companies to avoid collapse and took effect in 2016.

A commercial company may be declared bankrupt if it ceases to pay its commercial debts and it can be declared bankrupt even if it is in the process of liquidation.

In the case of public joint stock companies and LLCs, if the declaration of bankruptcy is requested then liquidation proceedings are suspended and it may not be liquidated before the completion of bankruptcy.

In the case of compulsory liquidation, the procedure commences by court order, when any partner files a case without all partners in attendance.

This type of liquidation also happens when the creditors of the company file for the dissolution of the company.

Voluntary liquidation can happen when shareholders decide to end business activity, a resolution must be passed to begin the process and a liquidator has to be appointed.

Stage 1:

• Prepare a notarised minute of the general assembly confirming the company liquidation and the appointment of a liquidator.

• Arrange an official letter by a registered liquidator accepting the duty.

• Apply for cancellation by filling the required form through DED or other approved channels.

• DED will issue a liquidation certificate.

• Publish the notice of liquidation in two local newspapers.

• The notice gives the debtors a grace period of 45 days from the date of issue to submit their claims.

Stage 2:

• Submit to DED a declaration letter from the liquidator and the partners indicating no objection from any other parties during the grace period.

• Collect required approvals of other government bodies to cancel a licence.

• Cancel the firm card at Ministry of Human Resources and Emiratisation.

• Cancel the foreign partners’ visas sponsored by the company at the respective General Directorate of Residency & Foreigners Affairs

• Submit all the above documents to get the approval for final cancellation.

• DED will determine the fees.

• You can receive the certificate of deregistration (cancellation) after paying the requested fees.

Notice period

I work in work in a company on a limited labour contract which is going to expire in January. I am leaving work but my employer says I have to serve a notice period of three months from January until March. The notice period is not mentioned in my labour contract and he is forcing me to do this otherwise he won’t accept my resignation, cancel my visa or pay me my end of service rights.

As per the UAE Labour Law, a limited labour contract expires on its expiry date, therefore you are not obliged to work a notice period. If you resign at the end of your contract and the employer is aware that your contract is expiring you should inform him in writing not to renew and that you are going to resign.