Should a Company be dissolved or allowed to die? What consequences might arise?

Based on experience and available data, we know that the practice of not liquidating a company when it has ceased to be profitable or when its partners have decided to cease activity for any reason has grown in Spain.

Sometimes, instead of properly liquidating a Company, business partners simply abandon it, mostly due to the costs and procedures involved in dissolving and liquidating a Company (notary fees, registration fees, lawyer fees, etc.). However, what business owners often don’t realize is that an inactive Company still has obligations and responsibilities that can cause them significant problems.

The administrators remain responsible for the Company. Even if a Company is no longer active, if legal proceedings were to take place against it, its administrator could ultimately be held liable if they allowed the Company to fail in order to avoid paying its debts. There are already Supreme Court rulings condemning administrators for this type of negligence.

Even if the Company is inactive, it still maintains its obligation to the Tax Authorities to file the Corporate Income Tax return and to the Commercial Registry to file its Annual Accounts. Failure to file the Corporate Income Tax Return results in penalties from the Tax Authorities, as does the failure to file the Annual Accounts. Although in practice this is not usually the case nowadays, the possibility exists and we have seen some instances.

Social Security can claim any debt, so the Administrator and their employees must be properly deregistered with that Agency.

One consequence of this massive abandonment of Companies has triggered an alert within the Tax Administration, prompting it to take action. The Treasury has resolved to combat this malpractice, which hinders its ability to perform its duties effectively. Therefore, it has prepared a tax control program that will remove abandoned Companies from its database, allowing it to focus on and properly monitor those that are genuinely active.

The guidelines were published on January 28, 2020 General Tax Control Plan and Customs for the year 2020, and among other topics focuses on the census of inactive Companies. This plan aims to revoke the Tax Identification Number of companies that are inactive. To this end, the Directors will be notified beforehand and given a period to submit objections. If, after this process, the Company is confirmed to be inactive, the revocation will proceed, forcing the closure of its entry in the Commercial Registry.

This procedure will be carried out in those Companies where any of these parameters are present:

1. Failure to file Corporate Income Tax returns for three consecutive years.
2. Not to have any outstanding tax debts with the Treasury that have been declared unpaid.
3. To establish a Company without initiating the activity or carrying out any acts for this purpose within three months of the NIF application.
4. Failure to respond to notifications for more than one year, after three notification attempts.

The effects of the revocation of the CIF are as follows:

1. Publication of the revocation of the CIF in the Official State Gazette, which determines its loss of validity for identification purposes in the tax field, until it is reinstated or a new one is assigned.
2. Inability to register in the corresponding public registry.
3. Inability to make charges and credits to accounts or deposits opened in credit institutions.
4. Inability to obtain the certificate of being up to date with tax obligations.
5. Deregistration from the Register of Intra-Community Operators (ROI) and from the Monthly Refund Register (REDEME).

But this revocation is not indefinite, as the employer is given the possibility of reversing this situation.

In conclusion, the widespread practice of abandoning a Company is not advisable, as the Administrator still has responsibilities that could prove costly. Given this, the Tax Agency has decided to act unilaterally, since it is also negatively affected by the situation, and will target inactive Companies to eliminate them from the market, preventing them from operating in the future, and above all, to focus on those that are active.