Definition
Dissolution refers to the formal ending of a business entity, which can occur through various processes. For partnerships, dissolution may happen due to the death of a partner. For registered companies, dissolution can be effected through the completion of liquidation or by the Registrar of Companies deeming the entity defunct. This often happens when the company appears to be inactive or fails to file required documents. Directors may also voluntarily apply for the company to be struck off the register.
Examples
- Partnership Dissolution Due to Death: When one partner in a law firm passes away, the partnership may dissolve, requiring legal steps to conclude or reform the business arrangement.
- Company Liquidation: A failing retail chain concludes its operations through liquidation, selling off assets to pay creditors, which results in the company’s termination.
- Striking Off by Registrar: A tech startup that has ceased operations without filing necessary reports is struck off the companies register for being non-compliant.
Frequently Asked Questions
What is the process for a company being struck off by the Registrar of Companies?
The Registrar of Companies may strike off a company if it no longer seems active, typically due to failure to file accounts or returns. Voluntary striking off can also be requested by company directors under certain circumstances.
Can a dissolved company be restored to the register?
Yes, a company can be restored to the register through a court application, supported by a petition and the payment of a requisite fee.
What happens to a partnership upon the death of a partner?
Upon the death of a partner, unless otherwise stated in the partnership agreement, the partnership is typically dissolved, necessitating restructuring or winding down of operations.
What is liquidation in the context of dissolution?
Liquidation is the process of converting the company’s assets to cash to pay off debts before formally disbanding the business entity.
- Partnership: A business arrangement where two or more individuals share ownership and operational responsibilities.
- Liquidation: The process of winding up a company’s financial affairs by selling assets to settle debts.
- Registrar of Companies: A government official responsible for maintaining the register of companies, including their formation and dissolution.
Online References
Suggested Books for Further Studies
- “Company Law” by Alan Dignam & John Lowry: Comprehensive coverage of company law including dissolution processes.
- “Business Partnerships and Organizational Performance: The Role of Resources and Capabilities” by Wei Jiang: Detailed insights on business partnerships and dissolution.
- “Corporate Insolvency Law: Perspectives and Principles” by Vanessa Finch: An in-depth exploration of liquidation and corporate insolvency law.
Accounting Basics: “Dissolution” Fundamentals Quiz
### What terminates a partnership due to one partner's death?
- [x] Dissolution
- [ ] Liquidation
- [ ] Incorporation
- [ ] Amalgamation
> **Explanation:** The death of a partner often leads to the dissolution of the partnership unless otherwise specified in a partnership agreement.
### Which entity handles the striking off of companies?
- [ ] Securities Exchange Commission (SEC)
- [ ] Federal Reserve
- [x] Registrar of Companies
- [ ] Internal Revenue Service (IRS)
> **Explanation:** The Registrar of Companies is responsible for the administrative process of striking off companies from the register.
### What must directors do to voluntarily strike off their company?
- [x] Apply to the Registrar of Companies
- [ ] Notify the SEC
- [ ] Decrease their share capital
- [ ] Issue a press release
> **Explanation:** Directors must apply to the Registrar of Companies to have their company voluntarily struck off.
### Can a company that has been struck off the register be restored?
- [x] Yes, through a legal process.
- [ ] No, it’s permanent.
- [ ] Only if it was fraudulent.
- [ ] Only if it’s within five years.
> **Explanation:** A company that has been struck off can be restored by a court application and paying applicable fees.
### What is required for a partnership dissolution?
- [ ] A shareholder's meeting
- [ ] Liquidation of assets
- [x] Legal steps as per partnership agreement
- [ ] Merging with another firm
> **Explanation:** The dissolution of a partnership usually requires legal steps as outlined in the partnership agreement.
### Which action must a non-operative company take to avoid being struck off?
- [x] File necessary returns and reports
- [ ] Repay any loans
- [ ] Sell its assets
- [ ] Change its directors
> **Explanation:** Non-operative companies must file necessary returns and reports to avoid being automatically struck off by the Registrar.
### What happens during liquidation in the dissolution process?
- [x] The company’s assets are sold to pay debts.
- [ ] New shares are issued.
- [ ] The company merges with another.
- [ ] All operations are fully halted immediately.
> **Explanation:** Liquidation involves selling the company's assets to settle its debts before formally dissolving the entity.
### Why might the Registrar of Companies strike off a company?
- [ ] Successful business operations
- [x] Inactivity or non-compliance with filing requirements
- [ ] Unanimous partnership agreement
- [ ] Legal disputes amongst directors
> **Explanation:** A company may be struck off if it is inactive or fails to comply with filing requirements set by the Registrar of Companies.
### What fee must be paid to restore a dissolved company?
- [ ] Loan repayment fees
- [ ] Annual subscription fees
- [x] Court petition fees
- [ ] Penalty fees
> **Explanation:** A court petition fee must be paid to restore a company that has been dissolved.
### Which act may a company undertake to close down operationally?
- [ ] Undergo periods of restructuring
- [ ] Change its business model
- [x] Dissolution
- [ ] Increase its capital base
> **Explanation:** Dissolution is a formal act taken by a company to close down its operations permanently.
Thank you for deepening your understanding of dissolution in a business context and exploring how different entities must manage their end-of-life processes effectively.
