Remote Liquidation of Sole Proprietorships (SP) and LLCs in Armenia

Liquidation of SP and LLC in Armenia

In Armenia, the two most popular forms of small business registration are Sole Proprietorship (Individual Entrepreneur) and Limited Liability Company (LLC). The differences between these legal forms are similar to those in many other countries, including Russia.

Differences Between SP and LLC

SPs generally have some advantages over LLCs, such as the ability to work individually (though a local accountant is still required in Armenia), lower paperwork requirements, and typically a more lenient tax administration. While opening a business is relatively easy, liquidation is usually a more complex process.

Closing or Liquidating a Sole Proprietorship in Armenia

There are situations where an SP needs to be closed or liquidated. This can be done in three main ways:

1. By submitting an application for termination of business activity.
2. Through bankruptcy proceedings, either voluntary or forced.

Important Note: The tax authorities may conduct an audit upon initiating the closure process.

Steps to Liquidate an SP

To begin the liquidation process, the following standard set of documents is required:

• Application for termination of SP activities in the prescribed format.
• Original SP registration certificate.
• Proof of payment of all necessary taxes and fees.
• Copies of the passport, SP registration certificate, and tax card.

Process Overview

1. Notify the Tax Authorities
   • The SP submits an official application for closure.
   • The accountant verifies that all taxes and fees have been paid to ensure there are no outstanding debts.
   • A final financial report is submitted.
2. Asset Management
   • If the SP owns goods, real estate, or other assets, they must be sold, transferred, or disposed of in accordance with Armenian law.
3. Closing the Bank Account
   • The SP’s bank account is closed after all taxes and debts are settled, and any remaining assets or funds become the property of the entrepreneur as an individual.

Bankruptcy Proceedings for SPs

Bankruptcy can be voluntary or forced:

• Forced bankruptcy is typically initiated by creditors or tax authorities through the court.
• If the SP cannot settle its debts, a bankruptcy specialist (accountant or economist) is recommended to minimize losses.

Closing or Liquidating an LLC in Armenia

Liquidating or closing an LLC can involve:

• The original founders exiting the company by transferring or selling their shares.
• A complete liquidation in accordance with Armenian law.

Types of LLC Liquidation

1. By Decision of the Founders
   • The company ceases operations without passing its rights and obligations to successors.
   • The company is officially removed from the State Register of Legal Entities under the Ministry of Justice of Armenia.
2. Through Bankruptcy Proceedings
   • If an LLC cannot pay its debts, bankruptcy procedures are initiated.

Reasons and Methods for LLC Closure

Voluntary Closure

1. Decision by the founders to close the company for any reason.
2. Selling the business to new owners (often used for “alternative” liquidation).
3. Merging with another company to form a new legal entity.

Forced Liquidation

1. Non-payment of taxes
2. Expired business licenses
3. Legal violations
4. Company bankruptcy

Official Voluntary Liquidation Process (According to the Armenian Civil Code)

Steps of Liquidation

1. Founders make a formal decision to liquidate the LLC.
2. A liquidation commission is appointed to oversee the process, assuming control from the company’s leadership.
3. The tax authorities and state registrar are notified, and the LLC’s status is updated to “in liquidation” in the state register. At this stage, the company can no longer engage in any legal or financial activities.
4. The liquidation commission evaluates assets, debts, and liabilities.
   • Creditors are notified, debts are settled, and taxes are paid.
5. A preliminary liquidation balance sheet is prepared and approved.
6. Debts are paid in accordance with legal priority.
7. A mandatory tax audit is conducted.
   • The tax authorities perform an on-site audit of all company records to identify any irregularities.
8. Final actions before closure:
   • The company is removed from extra-budgetary funds (social security, pension funds, etc.).
   • The bank account is closed.
   • Documents are archived as per Armenian law.
9. A formal certificate of termination is issued, and the LLC is officially deleted from the state business registry.

Handling Remaining Assets

If the LLC has money or property left after settling all debts, these assets are distributed among the founders based on the company’s charter and Armenian law.

Bankruptcy Option

If the LLC cannot pay its creditors or taxes, a bankruptcy procedure is initiated instead of voluntary liquidation.

Timeframe for Liquidation

The official closure process can take at least 6-8 months.

• Delays may occur if tax audits find irregularities, unpaid taxes, or errors in paperwork.
• Penalties and fines can be imposed by the authorities if violations are discovered.

Should You Handle Liquidation Yourself?

Self-liquidation is time-consuming and risky. Hiring qualified accountants and legal professionals helps to:
Speed up the process
Avoid fines and legal issues
Ensure a smooth and compliant closure