Liquidation, winding up and dissolution are used as synonyms in the UAE, so when you hear one term or another, it’s all about one and the same process. Depending on the company type, liquidation can be executed by following the provision of either Commercial Companies Law for mainland companies, Free Zone Regulations for free zone companies or Offshore company Regulations for offshore companies. As there are many emirates and registration authorities in the UAE, there are many different rules and conditions for executing the procedure. In this blog post, we will discuss the main reasons due to which any company is liquidated in Dubai.
Key Reasons Behind Company Liquidation in Dubai
Dubai has become a market full of opportunities for growth. These possibilities encourage new companies and businesses to invest in the Dubai market. Even though there is a clear protocol for doing so, there are still some firms that face some problems while on their way to success. These problems may be legal or related to the financial aspect. Because of these problems, the liquidation process of the company is taking place. The liquidation process of the company would depend on the current financial status of the company.
Let’s discuss some of these reasons in detail:
Choosing the Wrong Location
The success of the company depends very much on its location. Not every area is secure for almost all type of business. It is important to choose a location with considerable caution in order to prevent potential problems that may arise in the future. The company may liquidate due to the choice of the wrong location.
Inadequate Financial Abilities of The Business Owner
The owner of the company is the one on which the entire operation of the business relies. If the company owner does not have the necessary and appropriate financial expertise, there is less possibility of success and more risk of loss. Financial problems are one of the most critical when it comes to the core system in which the company will run. Poor financial skills would mean that you are not managing the required talent, which may result in negative outcomes.
Absence of Efficient Planning
Planning is essential at every phase of the business. If things are not planned effectively, there is a possibility that the outcomes will not be as anticipated. The lack of adequate preparation is a major reason for the company’s liquidation. When operations are not successfully planned, they do not add to the success of the business as a whole.
Lack of Sufficient Financial Resources
Running a company often needs an investment that is far higher than the planned amount. If a company owner wishes to compete on the market, they need to have the required money to keep going. It would not be a safe choice to transfer credit lines that lack complete control of the user. Owing to the nature of these problems, the owners of the company may decide to liquidate the company.
Shortage of Skilled Work Force
The owner of a company should have three key attributes, i.e. managerial, professional and entrepreneurial. The lack of all of these characteristics would not be beneficial for the company. Often, there is a small possibility that a single individual has all these essential attributes. That’s why any company owner wants a strong and skilled team who can execute all the tasks listed. The absence of this team could lead to the liquidation of the business in Dubai.
Other than the above-mentioned reasons, there are some other causes behind the liquidation of a company:
- Expiry of license or duration mentioned in the articles of incorporation or association
- Completion of the objective for which the company was established
- Approval of the shareholders that the company’s term of existence be brought to an end as per the stipulated majority
- A company becomes insolvent and is not in a position to clear off its debts.
- A company has no purpose in going forward.
- Sometimes a company may require reorganization or restructure and it becomes more appropriate for them to wind up.
- A company owner wants to stop the consistent stress from the creditors seeking payment.
- A company owner suddenly decides to cease the company operations.
- A company goes through certain legal problems because of the law-related issues.
We Are Here for You
Once the liquidation process of a company in Dubai has started, the firm is erased from the Trade Register, the business license is revoked, and the visa of foreign investors is annulled. More than that, the dissolution of the company is officially announced through a statement signed by the liquidator in charge.
This may be a tiresome process, so feel free to get in touch with our consultants in Dubai for in-depth details about how companies are liquidated in Dubai and about the legal terms involved in such kind of procedure. At Riz & Mona Consultancy, we will assist you in the process of closing down your business. Our team delivers professional guidelines that can help you minimize your legal liabilities and possible financial losses during license cancellation in Dubai. We coordinate with the concerned authorities and administer all the processes involved to ensure smooth and hassle-free completion of the liquidation process.