Company liquidation is a key legal step when ceasing activity or dissolving a company in general, whether in the case of liquidating a partnership company, a joint-stock company, or a limited liability company. The decision to liquidate a company is issued by the partners, the general assembly, or the owner. Canceling the commercial registration is the first legal step to liquidate the company and avoid fines and taxes.
In this article, we will discuss the reasons for liquidating partnership companies, as well as the liquidation steps and the necessary documents to comply with the legal form of proper liquidation under laws and regulations.
| Table of ContentsPartnership Companies Reasons for Liquidating a Partnership Company Steps to Liquidate Partnership Companies Required Documents for Liquidating Partnership Companies Fees for Liquidating a Partnership Company Impact of Liquidating Partnership Companies on the Saudi Economy Benefits of Enacting the Partnership Company Liquidation System Liquidating a Partnership Company with the Help of Experts at Tariq Al-A’mal Al-Alamiya (Global Business Path) |
Partnership Companies
Partnership companies are a type of company composed of two or more partners, where each partner is fully responsible for the company’s debts and obligations. These companies were common in the past due to their ease of establishment and flexibility, but they faced challenges related to transparency and protecting the rights of partners and creditors. In partnership companies, there is no separation between the company’s assets and the partners’ personal assets, meaning that partners can lose their personal assets in case of company bankruptcy. This is the fundamental difference between limited liability companies and partnership companies.Reasons for Liquidating a Partnership Company
Liquidating a partnership company does not necessarily result from a dispute; rather, there are several general reasons that lead to liquidating companies of various types, including partnership companies. These reasons include:- The expiration of the company’s term, if a specific duration was defined in the founding contract.
- The disappearance of the company’s founding purpose.
- The impossibility of practicing the company’s activity due to loss of capital.
- Dissolution of the company by law, based on a judicial ruling for any reason.
- Partners’ consensus to dissolve the company.
- Death of one of the founding members, provided this is mentioned in the company’s founding contract.
- A rare case that may cause liquidation: only one partner remains due to the death, withdrawal, or bankruptcy of the others. In this case, the remaining partner has 90 days to correct the path by adding a partner or changing the company type; otherwise, the company is liquidated by law if not corrected within this period.
Steps to Liquidate Partnership Companies
The liquidation process includes several steps, divided into general steps and executive steps:General Steps
- Settling obligations: All company debts and financial obligations are paid off. This is done after a comprehensive review of the company’s financial status and identifying all creditors.
- Distributing assets: After settling debts, the remaining assets are distributed among partners according to their shares. This step requires preparing a detailed report on the company’s assets and liabilities.
- Announcing the liquidation: The liquidation is officially announced through the legally specified means, such as publication in the official gazette or on the Saudi Ministry of Commerce website.
Executive Steps
You can always visit the National Platform for Government Services in Saudi Arabia and start the liquidation request by following these steps:- Access the Partner Decisions System link (PD.MC.GOV.SA).
- Select the required service.
- Fill out the form and submit the request.
- After approval and documentation of the request, pay the fees.
- The contract is published.
- The commercial registration is canceled via the digital branch.
Required Documents for Liquidating Partnership Companies
Some documents are required to complete the company liquidation legally and to cancel the commercial registration. These documents are submitted in two stages: First Stage of Liquidation- Partners’ liquidation decision according to an official meeting minutes on company stationery, certified by the Chamber of Commerce or a Ministry of Commerce official.
- Liquidator’s seal on stationery, with signature certification.
- A recent financial statement for the company as of the liquidation date from a certified public accountant in Saudi Arabia.
- Ministry of Investment approval for liquidation if the company is licensed by the Ministry of Investment.
- A certificate from the General Authority of Zakat and Income confirming no objection to canceling the commercial registration of the liquidated company.
- Seal of liquidation end date on stationery, with signature certification.
- Final account from a certified public accountant in Saudi Arabia.
Impact of Liquidating Partnership Companies on the Saudi Economy
This is viewed as a positive indicator that strengthens the Saudi economy because the liquidation system leads to:- Increasing confidence in the private sector: By enhancing transparency and protecting the rights of different parties, investor confidence in the private sector grows. This leads to increased investments and economic growth.
- Improving the Kingdom’s global ranking: These reforms help improve Saudi Arabia’s ranking in international business environment indices, such as the World Bank’s Ease of Doing Business index.
- Encouraging modern companies: Instead of partnership companies, the establishment of limited liability companies (LLCs) or joint-stock companies is encouraged, which provide greater protection for partners and are more suitable for large investments.
Benefits of Enacting the Partnership Company Liquidation System
- Enhancing transparency: Partnership companies often suffered from a lack of financial and administrative disclosure, leading to difficulties in monitoring their performance and protecting stakeholders’ rights. This lack of transparency was a barrier to attracting foreign and local investments.
- Protecting creditors’ rights: Since partners in partnership companies are personally liable for company debts, there were significant risks to creditors in case of company bankruptcy. Liquidating these companies helps reduce these risks and protect creditors’ rights.
- Complying with international standards: Liquidating partnership companies aligns with Saudi Arabia’s move to comply with international corporate governance standards, boosting the confidence of foreign and local investors. This step helps improve the Kingdom’s ranking in international business environment indices.
- Encouraging investment: By improving the legal and financial environment, Saudi Arabia becomes more attractive for foreign and local investments, supporting the achievement of Vision 2030 goals. Modern companies, such as limited liability companies (LLCs) and joint-stock companies.
