Small businesses are promised an early closure

The State Duma approved in the first reading a bill simplifying the procedure for the voluntary closure of small businesses. In the absence of obligations to creditors and the budget, it will be possible to close an inactive legal entity within three to four months by submitting an application to the Federal Tax Service to exclude the legal entity from the Unified State Register of Legal Entities and without resorting to complex liquidation procedures. Now they take up to a year, and due to bureaucratic delays and excessive costs, it is often easier for entrepreneurs to “quit” a company, which is fraught with a three-year ban on starting a new business. The business and expert community support the initiative, noting the great demand for such a simplified liquidation.

The State Duma yesterday adopted in the first reading a draft law on amending the law “On State Registration of Legal Entities and Individual Entrepreneurs”, which significantly simplifies the process of closing companies in the small and medium-sized business (SME) sector.

Now the procedure for liquidating a legal entity is “complicated, expensive and long” and can take from six to twelve months, Tatyana Ilyushnikova, deputy head of the Ministry of Economy, explained when considering the project in the State Duma. According to her, this leads to the fact that a significant number of entrepreneurs prefer to simply “quit” the company, without filing accounts and without going through the liquidation procedures established by law. Subsequently, the company is liquidated already in an administrative manner – through the procedures for deregistration and exclusion from the unified register of legal entities (EGRLE). For entrepreneurs, this method of liquidation is associated with the risk of a three-year ban on starting a new business, participating in other companies and holding the post of CEO.

The bill approved in the first reading allows entrepreneurs to initiate the exclusion of a legal entity from the Unified State Register of Legal Entities without resorting to liquidation. It will be enough to submit an application to the Federal Tax Service (FTS), including in electronic form. The department will independently carry out the procedure for terminating activities by checking the company’s reporting, including the presence of outstanding obligations to the budget. According to Tatiana Ilyushnikova, the new procedure could cut the entire process in half, to three and a half months. This speed is explained by a wide list of requirements for companies applying for simplified liquidation: information about the legal entity must be included in the unified register of SMEs, the company must not be a VAT payer, have no debts to the budget, creditors, employees, not own real estate and vehicles. The simplified procedure is not available to those who are already in the process of liquidation, reorganization and bankruptcy.

Innovation is welcomed in the business and expert community. According to Ekaterina Avdeeva, a member of the General Council of Business Russia, the changes take into account the interests of both business and the state. According to her, entrepreneurs will be able to close the company without bureaucratic delays, tax and subsidiary risks, while the Unified State Register of Legal Entities will be updated. Sergey Uchitel, a partner at the Pen & Paper Bar Association, explains that the Civil Code and the relevant law now provide for several forms of liquidation of legal entities, including voluntary. “However, the current mechanism shows low efficiency both in terms of the costs of the procedure and in terms of the effect achieved both for the participants in the turnover and for the state,” he notes.

Oleg Kolotilov, a partner at Kulkov, Kolotilov & Partners, believes that relief was required in connection with the restructuring of the economy. “Many SME owners go out of business and at the same time are unwilling to finance and generally deal with complex liquidation procedures,” he notes. According to Andrey Shubin, Executive Director of Opora Rossii, in practice, the refusal of businesses to carry out the necessary liquidation procedures often led to negative consequences for conscientious entrepreneurs. So, for example, the founder, who retired from the business of the company before its forced liquidation by the Federal Tax Service, could lose the right to conduct another business, and the proceedings at the same time required financial and time costs.

The bill is proposed to be finalized for the second reading: in particular, in accordance with the comments of the legal department of the State Duma, corresponding amendments to the Civil Code will be required. Taking into account the finalization of the project, new procedures can start working as early as July 2023, Tatyana Ilyushnikova said.

Diana Galieva