An entrepreneur may decide to stop doing business for a number of different reasons:
- Retirement - transferring ownership is complex and must be planned well in advance of retirement but, if the company has an established market presence, the owner should consider handing it on, as it preserves all of the company's achievements, especially skills and jobs.
- Voluntary closure - entrepreneurs simply decide to close down their business and therefore have to follow the relevant national procedures.
- Bankruptcy - sometimes businesses are forced to stop trading. It may be because they are unable to adapt to the continuous changes that are part and parcel of business life - increased global competition, new products on the market, new technologies - or because of unforeseen events, such as the failure of a major customer.
To minimise losses for all concerned, early action is vital - either by planning a rescue strategy or deciding to liquidate.
DEFINITIONS
VOLUNTARY LIQUIDATION - Voluntary liquidation takes place when a company passes a resolution for dissolution and consequential voluntary winding up.
ENFORCED DISSOLUTION - Enforced dissolution is a decision taken by the Court of Laws and can happen in the following cases:
- if the business of the company is suspended for an uninterrupted period of twenty-four months;
- the business is unable to pay its debts
- the number of members of the company is reduced to below two and remains so reduced for more than six months (this does not apply to single member business)
- the number of directors is reduced to below the minimum prescribed by article 137 of the Companies Act and remains so reduced for more than six months;
- the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company;
- when the period, if any, fixed for the duration of the company by the memorandum or articles expires.
BANKRUPTCY - Bancruptcy occurs when a trader suspends payment of his debts due to a state of insolvency. Bankruptcy of a trader other than a company or commercial partnership other than a company is regulated by Malta's Commercial Code (Chapter 13 of the Laws of Malta).
SOLVENCY - Solvency refers to a business’s ability to meet its long-term obligations through its operations.
LIQUIDITY - Liquidity refers to a firm's ability to meet its financial obligations with cash and short-term assets it currently holds. A company may be illiquid but solvent; meaning that they are starved of cash (and no one will give them cash), but have long-term assets that are valuable enough to meet obligations in the long-term.