After the excitement, planning and all the work that goes into setting up a business, no-one really wants to admit that they have failed in their venture and need to close or sell-up. In difficult global, financial times, however, sometimes businesses have no choice but to put their companies on the market, seek buyers or bankruptcy or even liquidate.
There are a number of ways to shut down your business in the UAE as well as globally. However, how to close your business should be at the forefront or any company's mind, even before they set it up.
"We suggest that investors know about the exit route, before incorporating a business," Jitendra Gianchandani, managing partner, Jitendra Consulting Group, said. This is particularly important for some types of company:
"Especially LLCs [Limited Liability Companies] and in freezones," he said, "Some freezones require audited financials and a lock-in period of 15 to 30 days."
In the UAE, one aspect to keep at the top of your mind is the financial compensation that your employees will need to be given. Company owners need to cancel their employees' visas, as well as work permits.
This can be done at the Department of Naturalization and Residency as well as the ministry of labor. However, keep in mind that you will have to give your employees two months' notice - paid notice - before cancelling their employment contracts. Usually, your employees will be able to keep their visas until the trade license runs out (which makes repatriation a lot easier).
Of course, closing down a business with a physical presence - in a shop, showroom or office - also means cancelling utilities contracts and settling outstanding dues as well as cancelling warehouse or office leases and paying dues in that area.
Liquidating your Company
If you're unable to find a suitable buyer and can't see any other way to sell your business, sometimes the best option is to liquidate your company. When you liquidate your company, it means you have to sell off everything the company owns, in order to settle the dues mentioned previously (i.e. utilities, leases). This might mean you need to sell off office furniture, vehicles or other assets you might own.
There's actually no set process for liquidating each different asset, so you'll have to choose the best for you and the asset concerned. If you took out a bank loan, or your equipment was financed by your bank; make sure you speak to them and gain approval before selling anything.
The biggest issue with liquidation, however, is cancelling all your employees' visas and paying off liabilities, Gianchandani said. For this reason, he advises his clients to think about other ways to close the business.
"Many times, because of large investments in infrastructure and furniture, or established customers or a brand name and special licenses [which cost more than normal trading licenses], it's advisable to sell the business license, instead of liquidating the company," the business consultant said.
"However, the investor should do the proper due diligence before buying an existing license," he advised.
Selling up
There are a number of steps to take to sell your business outright. Firstly, you'll need to find evaluate its value and find an appropriate buyer!
Here are the basic steps to selling your business:
- Evaluate its worth - hire a chartered accountant or auditor to help in the evaluation
- Find a buyer!
- Agree the terms of sale with the buyer
- Get approval for the sale from the Department of Economic Development (DED) or similar authority in charge of business licensing
- Create a contract at the Dubai Courts - or the legal establishment in your country
- Submit this to the DED for the license to be amended (the name on the business license, which denotes ownership).
If you're selling shares or part of your business, you'll still need to amend the business license to show the change of ownership (following the steps outlined above). Technically, selling shares in your business still means that part of the ownership is changing, and so the license will also need to be amended.
Above all take the time to look at every option before deciding to sell or liquidate your business - one option might prove perfect for your brand and enterprise.
© Zawya BusinessPulse 2013
