If your international business expansion isn’t going to plan, it’s important to understand how to liquidate a company in Ecuador.
Ecuadorian legislation provides several procedures to liquidate, cancel and dissolve established companies or branches domiciled in the country.
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In general terms, it is important to keep in mind that the potential closing process of a company in Ecuador is complex and can take some time to see through to the end. There are several important steps and legal obligations to comply with along the way. You’ll need to engage with a local legal expert in Ecuador for assistance with this process.
The causes for the closure of the business are determined by law. However, liquidation proceedings typically begin from the unilateral and voluntary decision of the partners, or by decision of a competent authority (such as the Superintendence of Companies or a court order).
Main steps to liquidate a company in Ecuador
As mentioned, the process to liquidate a company in Ecuador involves a strict set of procedures, for which you will need a legal representative. This process covers dissolution, liquidation and cancellation steps for companies in Ecuador.
Ecuadorian legislation considers that a company is in the process of ‘dissolution’ when its accumulated losses are equal to half of its capital, plus total reserves. Shareholders may choose to counter this status by recapitalizing the company. Otherwise, they’ll begin the process to liquidate the company in Ecuador.
1. Liquidate through a petition
Both local and foreign companies that do not have outstanding obligations or debts to third parties can request a voluntary dissolution, liquidation and cancellation in the same act. This can shorten processing times for full liquidation.
To do this, the legal representative must submit a petition to the appropriate government authorities, which will be reviewed. This petition must be completed in compliance with the requirements under Ecuadorian corporate regulations for the dissolution, liquidation and cancellation of a company.
Although this procedure can alleviate many of the steps and especially the waiting time with respect to the common procedure, it is nevertheless important to have the appropriate accompanying advice from a legal expert in Ecuador to successfully complete this abbreviated process.
Finally, it must be taken into account that whatever the cause of dissolution and liquidation, the company can be reactivated until its cancellation is registered.
2. Extraordinary shareholder meeting
For companies that do hold obligations to or debts with third parties, the process to liquidate the company in Ecuador begins with the decision by shareholders to cease operations. This decision must be made in an ‘extraordinary’ shareholder meeting.
In this meeting, shareholders must appoint a Liquidator, who will take responsibility for selling the company’s assets. It’s typically the Legal Representative that assumes this role, as the obligations are the same for both roles – to act on behalf of the company in a legal capacity.
Note: Real estate assets must be auctioned off, unless otherwise outlined by shareholders in this extraordinary meeting.
3. Inventory of assets and debts
It’s then the Liquidator’s responsibility to take inventory of the company’s assets and debts. This inventory will outline creditors and any outstanding taxes owed to government authorities.
4. Submit report and work plan to Superintendence of Companies
By Ecuadorian law, the Superintendence of Companies (Superintendencia de Compañías, Valores y Seguros) must declare the company as dissolved. The Liquidator must submit a report and a work plan to the Superintendence. The report outlines the way in which the company’s passive assets will be liquidated. This report must include the financial balance sheet.
Once these amounts have been settled and the company declared dissolved, the company is now without legal status, which must be registered with the Mercantile Registry (Registro Mercantil).
5. Liquidate company assets and property
Once the Liquidator has informed the appropriate government authorities, they can begin selling the company’s assets to repay any outstanding debt or claims by creditors.
Remember, real estate must be auctioned off unless otherwise stated in the terms established during the extraordinary shareholders’ meeting.
It’s the Liquidator’s responsibility to ensure this is carried out in full compliance with local law, and that any priority of debt repayment is adhered to. This is why it’s highly recommended to seek an experienced legal representative in Ecuador for support.
Processing time for company liquidation
The time it takes to liquidate a company in Ecuador varies depending on several factors, such as the size of the company, the amount of liabilities, the previous status it had before liquidation, among others.
In this sense, the average time to liquidate a company in Ecuador is 120+ days.
Differences in terminology for local foreign company liquidation
Although requirements and steps to be followed are the same, it is important to know that there are slightly different terms for liquidating locally-owned companies, and liquidating foreign companies.
Local companies in Ecuador are considered ‘liquidated, dissolved, and canceled’. On the other hand, foreign companies domiciled in the country are considered to have ‘revoked their operating permit.’
From a practical perspective, both cases have the same legal effects.
Common FAQs for Liquidating an entity in Ecuador
Based on our extensive experience these are the common questions and doubts of our clients when liquidating a local entity
Shareholders’ Meeting: The company’s shareholders convene a meeting and approve the decision to dissolve the company and initiate the liquidation process.
Appointment of Liquidator: A liquidator is appointed, who can be a third party or the company’s legal representative. The liquidator is responsible for managing the liquidation process.
Notice to Authorities: Formal notice of the company’s decision to dissolve and liquidate must be sent to the Internal Revenue Service (Servicio de Rentas Internas – SRI) and other relevant authorities.
Publication of Notice: A notice of the company’s dissolution and liquidation is published in a newspaper to inform creditors and other interested parties.
Asset Liquidation and Debt Settlement: The company proceeds to liquidate its assets and settle its debts, ensuring proper distribution of funds to creditors.
Employee Settlement: Settlement of employee obligations, including payment of wages, severance, and other entitlements in accordance with labor laws.
Account Closure and Tax Compliance: Closure of the company’s accounts and fulfillment of tax obligations, including the submission of final tax returns.
The liquidation process will normally take between (6) and (12) months, assuming the entity is in good standing and no rectification work is required.
Engage with corporate law experts to liquidate your company in Ecuador
In general terms, the dissolution, liquidation and cancellation of a company or a foreign branch in Ecuador can be a complicated process. It’s crucial that the Liquidator takes care to adhere to all corporate regulations when liquidating a company in Ecuador.
At Biz Latin Hub, our team of accounting and legal experts in Ecuador have extensive knowledge of corporate law at the regional and national levels. We offer a range of multilingual back-office and market entry solutions, including undertaking liquidation proceedings and other legal services on behalf of foreign companies.
If your company has made the decision to exit the Ecuadorian market, and needs assistance to comply with legal and administrative liquidation requirements, we can help.
Contact our friendly corporate law specialists in Ecuador here at Biz Latin Hub for assistance and advice customized to your company’s needs.
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