Dissolving a sole proprietor (FIE) on court order and in the event of the death of the entrepreneur
Doing business as a sole proprietor (FIE) is different from doing business as a company, and thus the dissolution process is significantly simpler. In addition to voluntary dissolution, a court may also demand that you cease operating as a FIE.
The most common reasons for the issue of the order to cease operating as a FIE:
- The objective of the business activity or the activity itself is not in conformity with the requirements set forth in legislation, or is in conflict with the public order and good morals.
- You have regularly failed to file income tax returns and failed to pay social tax.
In addition to that, a court may order that you cease business activity for reasons arising from legislation. Among other things, a court may order that you cease business activity if you have committed an offence.
If a court orders business activity to be ceased, you will have unlimited personal liability for your obligations.
The FIE’s business activity is considered ended if no-one continues the FIE’s business activity. The entrepreneur’s tax obligations and assets pass to the successors in accordance with the Law of Succession Act. If the successors give up claim to the inheritance, the business assets and obligations of the bequeather will not be transferred to them. In case of failure to communicate abandonment of claim, the estate will without exception be considered accepted by the successors.
If the assets of the bequeathed are inventoried, the successor will be released from the obligation to pay the bequeather’s debts from his/her own assets. Thus, if debts exist, they are to be paid only within the limits of the value of the inherited assets. The successors must pay both the tax amounts declared by or determined for the bequeather.
If the successor decides to continue business activity, the successor must, within the first month of the death of the bequeather, register as a new entrepreneur in the Commercial Register and in the case that he or she is a VAT taxpayer, with the Tax and Customs Board. The owner, business name and other necessary information shall be changed in the Commercial Register. An opening balance sheet shall be drawn up as of the first day of the calendar month of the bequeather’s death.
The new entrepreneur shall continue activity as the same undertaking, with the same register number, assets (cash, receivables, equipment, livestock etc) and liabilities (loans, leases, labour etc) which are now the responsibility of the successor. The tax returns (except for the VAT return) for the month of the bequeather’s death and the following calendar months must be filed in the name of the person continuing the business activity. In addition to that, the successor who has decided to continue FIE’s activity must declare the business income in the name of the bequeather for those calendar month when the bequeather was alive, but the term for the submission of tax returns has not arrived yet.