Chike knew it was time to move on. He had run a fashion business for over 5 years since he graduated from University. The company, incorporated since its first year has grown a lot since it began and like the typical Nigerian startup, has seen its fair share of struggles.
But now, Chike has identified a new and solid business opportunity in teaching online courses. After testing the market for over a year, he has decided it is time to make a switch, wind up the fashion business and focus on the edutech business.
Winding up of a company is the process for dissolving a registered company in Nigeria. It is a decision that can be made by the company directors and shareholders, company creditors or a law court.
How exactly does Chike go about winding up his fashion couture business? Chike needs to identify which of the legal processes of winding up apply to him. Unlike undocumented businesses which are free to close down any day without much notice or processes, winding up a registered limited liability or public company is a different ball game.
There are different ways to wind up a company, the details of the process require expert legal help - just the thing we're here for! However, before then, it helps to know what to expect.
The 3 legal approaches to wind up a company are:
- Winding up by the court
This is usually the route taken if the company falls into certain categories - in which the court has to rule that it be wound up. An example is where the company is unable to pay its debts. Here, the owners of the company are required to present a petition to wind up the company to the court.
- Winding up voluntarily by members
This process requires that a general members meeting be held to pass a resolution to wind up. This is followed by submitting the required notices to the CAC and placing publications in newspapers to let the public know the company is winding up. The company will also make a declaration of solvency. A declaration of solvency means that the company's assets are more than its debts, and it can settle all debts (if any) with its assets. In this process, a liquidator - typically a lawyer with the required expertise or an accountant is selected to handle and spearhead winding up activities
- Winding up by company creditors
This is similar to winding up by members, however, this process is initiated by the company's creditors and will exclude the company making a declaration of solvency as obviously, it isn't solvent as its debts are more than its assets. Usually, the company's remaining assets are sold to settle outstanding debts to employees, creditors, the government and lastly any shareholder loans. Like in the case of winding up by members, the creditors will appoint a liquidator to administer the process.
- Chike needs to get expert legal counsel
If instead of winding up, Chike leaves his business redundant - without going through the due winding up processes, he is expected to continue to file taxes and make statutory returns. Where he does not, he may face penalties. For example, according to the law, failure to file VAT results in a cumulative N5,000 fine for every unpaid month.
This is another good reason to get proper legal counsel and formally wind up a company. You definitely do not want to incur costs on a dormant business.
Engaging a lawyer on our platform is super easy and seamless. If you are just about to start a new chapter in a different business? Let's help you start off on the right track too - get your company registered here.