Running a business is not easy and it is said that for every business that succeeds there are 100s that fold over every day. Changing technologies, overzealous compliance rules, competition, economic downturn or sheer bad luck can land a company in trouble. Sometimes the only options available to a company are to close shop, liquidate or dissolve. Public limited companies can opt for deregistration or delisting as a cost-cutting measure.
Let’s take a look at the jargon involved when a company closes shop or deregisters. A company’s deregistration process is generally dependent on how the company has been formed, the reasons for closure, and whether it is forced or voluntary.
Deregistration of a company means that you can no longer trade as a public listed company. By deregistration and delisting a company’s securities, the business ceases to be a publicly traded entity. The reason a company goes for deregistration is because its shares are not trading profitably in the market and it cannot raise the capital for expansion and improvement.
One can file for deregistration if all members of the board of a company agree.
It has a limited number of shareholders (between 300-500 averagely, based on the country of operation).
The company has ceased to operate for a set period (again varies in different countries).
It has no legal issues or liabilities or debts.
A company can be forced to deregister if it is no longer trading and has not complied with financial review regulations.
By deregistering, a company can avoid costs of public filing, legal fees and accounting fees and improve its bottomline. The company is also freed from strict compliance rules and public disclosure regulations. But the disadvantages are also many. Operating as a private entity means attracting investors and funds might become difficult with the company stock going down. There are lesser alternatives for incentive programs. Employees who have a stake in the company may find their stock has little or no value in the open market, which may lead to dissatisfaction and an exodus of talent.
But for companies finding the cost of compliance and regulation tough, deregistration can be a viable option. Deregistration rules vary according to the country of operation. In places like Hong Kong, deregistration services are on offer for foreign entities as well as home grown ones.
Delisting or deregistration is also known as “going dark”. This happens when a company stops filing public reports required by statutory regulations of a country, thereby putting an end to any publicly available information on the company—in other words going dark
A business can also be liquidated. Liquidation means, a company’s assets are used to pay off any debts or liabilities before it is closed. This happens when a company becomes insolvent. A liquidator is appointed by the concerned authority to see that the assets are duly disposed off and the claimants compensated adequately. After which the business ceases to exist.
In simpler terms liquidation can also mean selling a securities position for cash.
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