The Liquidation Process

Last updated: May 2024
Regulations Guide to WFOE Establishment, Registration & Liquidation

Want to know how to close a business in China? The liquidation process is structured, but it can also be quite complicated.  PTL Group specializes in company registration in China. We make sure that China company registration is done right, and is supported by extensive operational support for registered entities. This is where our knowledge and expertise really make a difference.

The Liquidation Process

The Chinese government requires every company planning to close down, both foreign-owned and domestic, to go through a formal and complex multi-stage process. However, there has been a recent improvement in the WFOE closing process, though only for WFOEs that have been managed properly and have met all requirements prior to their closing.

Learn more about the financial aspects of closing a company in China, and check out our WFOE Shutdown service.

The liquidation committee

Closing a company in China? You should know that Chinese business shutdown procedures require the establishment of a special committee, consisting of 3 or more representatives nominated by the shareholders, within 15 days from the start of the closing process.

This committee is the entity that is responsible for company liquidation. Its main responsibilities and obligations are as follows:

  • Consolidating and implementing a liquidation plan
  • Formulating a detailed and organized list of all corporate assets, including intellectual property
  • Preparing a WFOE dissolution report, with the shareholders’ approval
  • Dissolving all financial and contractual liabilities
  • Legal representation of the company in civil lawsuits
  • Delivering written notice of closure to the creditors

In the case of simple cancellation (i.e., when the enterprise has no debts, outstanding liquidation expenses, employee wages, social insurance expenses, legal compensation, and outstanding taxes) there is no need to set up a liquidation committee.

Liquidation sale

The most important aspect of closing a company in China is the company’s official liquidation, which may last between 9-12 months.

The reason for this relatively long time is explained by the greater scrutiny the China business is put under, and the various of fronts the business is required to face.

The de-registration process can be divided into two main areas where the liquidation committee works in order to complete the process. In each area, there are several steps and tasks to accomplish.

Termination of financial and contractual liabilities

  • Liquidating and selling of assets (e.g., liquidation expenses, employees’ salaries and social benefits, other outstanding debts, etc.).
  • Terminating employees’ contracts – it is recommended to begin this process as early as possible, in order to avoid issues that may delay its completion.
  • Tax clearance – this is one of the longest steps in the liquidation process, which can take up to 8 months. It requires submitting three years of financial records and completing an audit.
  • Bank account closure – the RMB basic account  is the last to be closed. Note that the legal rep’s original passport will be required. Also, we recommend clearing the cash in the bank BEFORE initiating the WFOE closure procedure. By “clearing” we mean the balance shall be “0”. Any balance even a minor amount as “0.01” will cause a ridiculously long and complicated procedure in the bank to close the account.  Theoretically, any balance left in the account during the account closure is transferred back to the investor, but banks always suggest that companies transfer the fund to whatever accounts. This action is difficult and unsafe for WFOEs at a closure stage.

Liquidation with Chinese authorities and media

  • Filing records and submitting documents to relevant authorities – the State Administration for Market Regulation, the Ministry of Commerce, SAFE, the Customs Bureau etc.). Once all certificates are obtained, the company is no longer registered as a legal entity.
  • Public announcement – announcing the shutdown publicly through the media within 60 days from the committee’s establishment, including removal of online references concerning the company’s business activities.
  • Cancel company chops – this is the final step of the entire de-registration process, as the company’s chops are still required for previous steps.

Learn also the step-by-step process of WFOE registration in China.

At PTL Group, we specialize in registering and managing foreign-owned entities in China. Get in touch today and let us support your China operations.

Last updated: May 2024