Company liquidation in Armenia

Liquidation of Sole Proprietorships (SP) and Limited Liability Companies (LLC) in Armenia

In Armenia, the two most popular forms of small business registration are Sole Proprietorship (SP) and Limited Liability Company (LLC). The distinction between these legal structures is similar to that in many countries, including Russia. The main advantages of an SP over an LLC typically include the ability to operate individually (although a local accountant is still required in Armenia), reduced paperwork, and generally more lenient tax regulations. The liquidation of company in means of process for both SPs and LLCs in Armenia tends to be lengthier than the registration process.

Closing or Liquidating a Sole Proprietorship (SP) in Armenia

There are various reasons why an entrepreneur may need to close or liquidate their SP. The process can be carried out in three main ways:

  1. By the SP’s voluntary application for business termination.
  2. Through bankruptcy proceedings, which may be voluntary or involuntary.

The first thing to consider when initiating the closure process is the possibility of a tax inspection.

Steps to Liquidate an SP

To begin the process of liquidating a sole proprietorship, the following documents are required:

  • A formal application for termination of SP activities in the prescribed format.
  • The original SP registration certificate.
  • Proof of payment of all required taxes and fees.
  • Copies of the passport, SP registration certificate, and tax identification card.

Once the tax authorities have been notified of the intention to close the SP by submitting the relevant application, the SP’s accountant must conduct a tax and fee reconciliation to ensure that there are no outstanding debts. A final financial report is then submitted.

If the SP owns goods, real estate, or other assets, they must be sold, transferred, or disposed of in accordance with Armenian law.

A business bank account should be closed only after settling all tax obligations and liquidating any remaining assets. Any remaining funds will belong to the SP owner as a private individual.

Bankruptcy Process

The bankruptcy process can be voluntary or involuntary. In the latter case, creditors or tax authorities may file claims through the court, and if the SP is unable to settle or negotiate these debts, bankruptcy is declared. To minimize losses, SPs undergoing bankruptcy should seek assistance from qualified accountants and financial experts.

Closing or Liquidating an LLC in Armenia

The closure or liquidation of company LLC can be informally understood as the exit of the original founders from the company’s capital and management, but a legal and official way to close an LLC is through formal liquidation under Armenian law. There are two main methods for LLC liquidation:

  1. By decision of the founders, ceasing the LLC’s activities without transferring rights and obligations to successors. The company is then removed from the Agency of the State Register of Legal Entities under the Ministry of Justice of the Republic of Armenia.
  2. Through bankruptcy proceedings, where the company is unable to meet its financial obligations.

Reasons and Methods for LLC Closure

The process of LLC closure generally falls into two categories:

  • Voluntary liquidation, which includes:
    • Ceasing operations for any reason, formalized by a decision of the founders.
    • Selling the business to new owners (often used for an “alternative” liquidation).
    • Merging with another legal entity to form a new company (another form of “alternative” liquidation).
  • Involuntary liquidation, which is usually due to:
    • Unpaid taxes.
    • Expired licenses.
    • Legal violations.
    • LLC bankruptcy.

Official Voluntary Liquidation Process for an LLC

Under Armenian Civil Code, the official voluntary liquidation of an LLC involves multiple stages:

  1. The founders pass a resolution on liquidation.
  2. A liquidation commission is appointed to oversee the process, assuming the duties of company management.
  3. The Tax Inspectorate and the State Register of Armenia are notified, and the LLC’s legal status is changed to “in liquidation” in the state registry. After this change, no further registration actions can be performed on the company.
  4. The liquidation commission manages the administrative and financial aspects of the process, including:
    • Assessing outstanding debts.
    • Notifying creditors.
    • Recovering debts from customers.
    • Settling all tax and fee obligations.
  5. A preliminary liquidation balance sheet is compiled and approved.
  6. Creditors are repaid in the legally prescribed order.
  7. The Tax Inspectorate initiates a mandatory tax audit, which usually involves an on-site review of all financial records. The goal is to identify any tax violations and approve the final liquidation balance sheet.
  8. The LLC is removed from external financial and legal registries, and its business bank accounts are closed. Company records are archived in accordance with Armenian law.
  9. A certificate of LLC closure is issued, and the company is deleted from the state register of legal entities.

If any funds or assets remain after settling debts, they are distributed among the LLC’s participants according to the company’s Charter and Armenian law.

Bankruptcy Considerations

If the LLC cannot meet its creditors’ demands and has outstanding tax liabilities, it may be subject to bankruptcy proceedings.

Timeframe and Challenges in Liquidation of company

The full liquidation process for an LLC typically takes at least 6–8 months, especially if tax violations, documentation errors, or financial discrepancies are discovered. Delays may also arise due to required tax inspections, debt settlements, and legal compliance reviews. These complications can result in fines or other legal sanctions.

Given the complexity and risks involved, handling the liquidation process independently can be costly and challenging. Engaging qualified professionals (accountants, legal experts, and auditors) can help streamline the process, ensuring compliance with Armenian law while minimizing potential financial and legal consequences.