Dissolution and Liquidation of China Company
1. Cause of Dissolution
A company may be dissolved under one of the following circumstances in accordance with Article 180 of the Company Law of the PRC:
(1)
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the term of business operation as prescribed by the bylaw expires or any of the situations for dissolution prescribed in the company’s bylaw occurs;
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(2)
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the shareholders?meeting or the shareholders?assembly decides to dissolve the company;
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(3)
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it is necessary to be dissolved due to merger or split of the company;
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(4)
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the business license is cancelled, or it is ordered to close down or to be dissolved according to laws;
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(5)
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Where the company meets serious difficulty in its operations or management so that the interests of the shareholders will face heavy loss if the company continues to exist and the difficulty cannot be solved by any other means, the shareholders who hold ten percent or more of the voting rights of all the shareholders of the company plead the court to dissolve the company.
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2. Company Liquidation
(1) Formation of Liquidation Group
Except for the merger or split of the company, a liquidation group shall be formed within 15 days after the occurrence of the cause of dissolution so as to carry out a liquidation.
The liquidation group of a limited liability company shall be composed of the shareholders, while that of a joint stock limited company shall be composed of the directors or any other people as determined by the shareholders?assembly. Where no liquidation group is formed within the time limit, the creditors may plead the court to designate relevant persons to form a liquidation group.
(2) Responsibilities of the Liquidation Group
The liquidation group may exercise the following functions during the process of liquidation:
(i)
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liquidating the properties of the company, producing balance sheets and asset checklists;
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(ii)
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notifying creditors by mail or public announcement;
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(iii)
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handling and liquidating the unfinished business of the company;
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(iv)
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paying off the outstanding taxes and the taxes incurred in the process of liquidation;
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(v)
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claiming credits and paying off debts;
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(vi)
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disposing the remaining properties after all the debates being paid off;
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(vii)
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participating in the civil proceedings of the company.
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Where any of the members of the liquidation group causes any loss to the company or any creditor by intention or due to gross negligence, he/she shall make respective compensations.
(3) Notification to Creditors
The liquidation group shall, notify the creditors within ten days after its formation and make a public announcement on newspapers within 60 days after its formation.
The creditors shall, within 30 days after receiving the notice or within 45 days after the issuance of the public announcement in the case of failing to receive a notice, declare their credits before the liquidation group. To declare credits, a creditor shall describe the relevant matters and provide relevant evidential materials. The liquidation group shall record the declared credits and may not pay off any debts to any creditors during the period of credit declaration.
(4) Completion of Liquidation
After the liquidation of the company is completed, the liquidation group shall made a liquidation report and submit the report to the shareholders?meeting or the shareholders?assembly for confirmation, and the company registration authority to deregister the company.
If the liquidation group finds that the properties of the company is not sufficient for paying off the debts after liquidating the properties of the company and producing balance sheets and checklists of properties, it shall file an application to the court for bankruptcy. Once the court makes a ruling declaring the company bankrupt, the liquidation group shall hand over the liquidation matters to the court.
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