We have discussed much about procedures for establishing a company in China, and you know that it is not an easy and quick thing. Neither is closing a company. Or even more complicated and time assuming, sometime it may incur conflicts between the shareholder and the employees if the liquidation team doesn’t handle matters properly.
The main procedures are as below:
1. Establish a liquidation group which will in full charge of the liquidation.
2. Record the liquidation group with the local administration department of industry and commerce.
3. Notify creditors of the liquidation.
4. Liquidate the company’s assets and make a balance sheet and a schedule of assets.
5. Negotiate with employees to terminate the employment relationship.
6. Dispose of company’s residual assets.
Above procedures are just a sketch, and each step is not easy to achieve. Among those, the most complicated or difficult step is to terminate the employment relationship, especially if the company employs many workers who are difficult to find new jobs. They are protected by the local work union and Chinese labor law. In most occasions, the company is obligated to pay compensation to employees for their agreement of ending the employment, and the bargaining process may be tough.
Liquidating the company’s assets is quite a professional procedure and it requires the participation of accountants or auditors.
You need also pay attention to some details, such as the time limit for notifying creditors. If the liquidation group doesn’t notify the creditors within the time limit, creditors may claim damages against the company.
The most important step is distributing the residual assets. And in this step, you should know that a statutory order is fixed by the law. The assets must be distributed in order and the shareholder could get the residual money or asset in last order if there is any left.