The company is dormant: dissolve, liquidate or keep it active?

When a company ceases to carry on business, it is often assumed that it is enough simply to leave it "inactive". However, the absence of business activity does not, in itself, cause the company to cease to exist. The company remains a legal entity and continues to be subject to the applicable legal, accounting and tax obligations.

Where there is no intention to resume business activities, it may therefore make sense to formally close the company. For this purpose, it is important to distinguish between three different concepts: dissolution, liquidation and extinction.

Dissolution: the beginning of the closure process

Dissolution does not mean that the company immediately ceases to exist. As a rule, it marks the beginning of the process leading to its closure.

The Portuguese Companies Code provides for several grounds for dissolution, including a resolution of the shareholders, expiry of the term set out in the articles of association, full completion of the company's corporate purpose, the subsequent unlawfulness of its corporate purpose, or a declaration of insolvency of the company.

Where the shareholders voluntarily decide to close the company, dissolution is normally approved by a shareholders' resolution and must subsequently be registered with the Commercial Registry.

Liquidation: settling the company's assets and liabilities

Unless the law provides otherwise, a dissolved company immediately enters into liquidation.

In general terms, the purpose of the liquidation process is to conclude any outstanding business, collect receivables, pay the company's debts, determine the remaining assets and, where there is a positive balance, distribute it among the shareholders.

This is therefore the stage at which the company's financial and asset position should be carefully assessed, including its assets, liabilities, existing contracts and any other obligations towards third parties.

Extinction: when does the company actually cease to exist?

A company is only deemed to have legally ceased to exist once the closure of the liquidation process has been registered.

In other words, dissolution and extinction are not synonymous: dissolution initiates the process, liquidation allows the company's existing financial and legal relationships to be settled, and extinction represents its definitive closure.

This distinction is particularly important because a company that merely ceases to carry on business, without being formally closed, continues to exist as a legal entity.

Keeping a dormant company or closing it?

The appropriate course of action will depend on the specific circumstances.

Keeping the company in existence may make sense where there is a genuine prospect of resuming business activities, or where the company holds assets, contracts or other interests that justify maintaining the corporate structure.

Conversely, where the business has permanently ceased and there is no prospect of using the company in the future, maintaining it indefinitely may result in unnecessary costs and administrative obligations.

Before proceeding with dissolution, it should also be confirmed whether there are any outstanding debts, receivables, assets to be transferred, ongoing contracts or other liabilities that need to be settled.

Conclusion

Ceasing business activities does not mean that a company ceases to exist. Its definitive closure will generally require a process of dissolution, liquidation and subsequent extinction, together with compliance with the relevant legal and registration formalities.

The decision whether to maintain or close a company should be assessed on a case-by-case basis, taking into account its financial and asset position, outstanding obligations and any realistic possibility of resuming business activities.

VPA is available to provide legal assistance throughout all stages of the dissolution and liquidation process, ensuring the appropriate legal framework and compliance with the formalities required for the company's definitive closure.