The dissolution of a company. Basic notions

The dissolution of a company. Basic notions

The dissolution constitutes the first phase or moment of the complex process of extinction of the capital companies. This process begins with the “dissolution”, which in turn opens the “liquidation” phase, at the end of which the final result of the extinction of the company is produced.

Dissolution, liquidation and extinction are the three successive moments of the same process. As the dissolution does not entail extinction per se, but the beginning of a process that concludes with the extinction of the company, after the dissolution, and while this process lasts, the company continues to exist, with its legal personality and activity, although in the process of extinction. During the extinction process, the dissolved company undertakes operations (liquidation) aimed at settling and liquidating all the legal relations entered into by the company in the course of business, and only after the liquidation has been completed, and once the remaining assets have been distributed among the partners, the company is extinguished, not before.

According to the criterion of the way in which its causes operate, several forms of dissolution are distinguished.

Dissolution ipso jure

The dissolution operates ipso iure or by operation of law, without the need for any specific dissolution resolution to be adopted by the general meeting, in the following cases:

•         The expiration of the statutory term of duration of the company, unless an extension resolution is adopted and registered with the Commercial Registry prior to the expiration of such term.
•         The legal obligation of the company to reduce the capital below the legal minimum, in which case the company would be dissolved as of right if within one year from the reduction it does not register in the Commercial Registry the corresponding resolution of transformation, dissolution or capital increase up to an amount equal to or greater than the legal minimum.
•         The opening of the liquidation phase in the company’s insolvency proceedings, which entails the automatic dissolution of the insolvent company.

 Dissolution due to the finding of a legitimate cause for dissolution

Dissolution can occur when there is a cause for dissolution -legitimate, either by law or by the bylaws- and a corporate resolution or a court decision is adopted that confirms and accepts it. The legal causes are the following:

•         The cessation in the exercise of the activity or activities that constitute the corporate purpose.
•         The conclusion of the business that constitutes the corporate purpose.
•         The manifest and not merely transitory impossibility of achieving the corporate purpose.
•         The paralysis of the corporate bodies, in such a way that it is impossible for them to function.
•         Serious losses, unless the cause for dissolution is removed by means of a capital increase with the purpose of reintegrating the net worth through new contributions, or a reduction to offset the losses and reestablish the balance between the capital and the net worth diminished as a result of losses, or an accordion operation consisting of a simultaneous reduction and increase of capital that combines the reestablishment of the imbalance and a new capitalization with new contributions.
•         The reduction of capital below the legal minimum, when it is not a consequence of compliance with a law.

Dissolution by mere resolution of the general meeting

Without the need for the concurrence of a legitimate cause specified in the law or in the bylaws, a company may also be dissolved by mere resolution of the general meeting, adopted with the quorum and majorities required for the amendment of the bylaws, at any time and without the need for a justifying cause beyond the free will of the majority.