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Putting
up a business involves investing one’s capital and
putting efforts and high hopes into it. For many
entrepreneurs, going into business after completing the
registration process, transacting with the Securities
and Exchange Commission (SEC) and the Bureau of Internal
Revenue (BIR) for the issuance of Certificate of
Incorporation and Certificate of Registration,
respectively, are the last steps that they will
undertake as far as compliance with the statutory
requirements is concerned.
Surely,
though, whether it is due to financial reversals,
legitimate business judgment or for whatever reason the
owners may have, every business desiring to retire
should first get the nod of various government agencies
before they can consider their business officially
closed.
Under
existing laws, dissolving corporations, whether they are
voluntary or involuntary, are required to notify the BIR,
LGU (local government unit where the firms are located)
and the SEC of such fact.
The
initial step in closing a business at the government’s
level is to secure a tax clearance from the BIR. The
dissolution or reorganization of a corporation shall,
prior to the issuance by the SEC of the Certificate of
Dissolution or Reorganization, secure a certificate of
tax clearance from the BIR, which certificate shall be
submitted to the SEC.
The Tax
Code further states that every corporation shall, within
30 days after the adoption of a resolution or plan for
its dissolution, render a correct return to the
commissioner, verified under oath, setting forth the
terms of such resolution or plan and such other
information as the secretary of finance, upon
recommendation of the commissioner, shall, by rules,
prescribe.
In line
with this, BIR-SEC Regulation 1 provides that every
dissolving corporation shall, within that period, file
their short period income-tax returns covering the
income earned by them from the beginning of the taxable
year up to the date of such dissolution.
Furthermore, the BIR requires that the following
documents be attached to the application for the
issuance of tax clearance:
• Board
resolution authorizing the dissolution;
•
Audited financial statements for the last three years;
• Copy
of the Articles of incorporation and Bylaws or license
to operate issued by the SEC;
•
Original certificate of registration;
•
Balance sheet as of the date of dissolution and income
statement covering the period from the beginning of the
taxable year to the date of dissolution;
• Annual
income-tax returns and VAT returns for the last three
taxable years;
• Latest
annual registration fee return (BIR Form 0605);
• List
of used and unused official receipts, invoices, etc.,
including the last booklets, used and unused booklets
and latest authority to print; and
• Last
volume of registered book of accounts.
After
submitting these documents, the BIR will then issue
either a Letter of Authority or a Tax Verification
Notice authorizing its revenue officers to determine
whether the applicant has any deficiency tax liability
before it issues the tax clearance.
Interestingly, in one case, the Supreme Court made a
pronouncement that the requirement of tax clearance
before the dissolution as approved by the SEC cannot be
imposed in a case involving a proceeding in receivership
and liquidation of a bank, wherein the proceedings were
initiated by the Monetary Board. Involuntary dissolution
by the SEC cannot be equated with involuntary
receivership and liquidation procedures of the MB since
they are governed by different rules and procedures.
Simultaneous with the processing of the application for
the issuance of tax clearance, the dissolving
corporation may file a notice with the LGU with whom it
is registered to request for the cancellation of its
registration. Similar to the BIR, the LGU likewise
determines whether the applicant has any deficiency on
local taxes and requires its settlement before it stamps
the word “retire” on the application for retirement.
Only
after the BIR has approved the dissolution of the
applicant by issuing the tax clearance can the owner
proceed to the SEC to cause the deregistration of its
business with the commission. The most common means used
to dissolve a company is by amending its Articles of
Incorporation to shorten its corporate term. This
requires the approval of the majority of the members of
the board with the concurrence of at least two-thirds of
the shareholders. Once the SEC approves the amended
Articles of Incorporation, the corporation is deemed
closed as of the date appearing in the amended Articles.
It would
seem that the procedures for the retirement of a
business are more painstakingly done compared with the
steps for its initial registration. If you can walk out
of the door with the various permits to operate in your
hands in just a couple of weeks, it could take you
several months or even years to secure the clearances
from the same agencies in case of dissolution. This only
goes to show the government’s vigilance in protecting
its own, and that of the public’s interests by not
letting business owners leave their corporate shell
without first settling their obligations.
It is
still the government which has the final say in
declaring whether your business is dead or alive.
The author is an associate of BDB Law. If you have any
comments or questions concerning the article, you can
e-mail the author at
conrad.p.cereno@bdblaw.com.ph or call 8562952. |
