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Dissolution, liquidation, and termination of a GmbH

A GmbH is usually established for an indefinite period of time, but it can also be dissolved for legal or contractual reasons.

Depending on the individual case, the dissolution can be on the initiative of the shareholders, a third party or, if the articles of association so provide, also automatically.

The dissolution of a GmbH, however, typically does not cause its expiration, but only the termination of the advertising activity. The dissolution of the LLC is regularly followed by liquidation proceedings, provided that corporate assets still exist.

Without liquidation, the GmbH expires if it has become insolvent.
It is also possible to transform a GmbH into another legal form according to the German Transformation Act, whereby the assets are transferred to the new legal entity. If there is a reason for the opening of insolvency proceedings and if insolvency proceedings are opened as a result, then this takes the place of the liquidation proceedings.

The termination of a GmbH thus takes place in three stages which build on each other and which are described below:

  • Dissolution
  • Liquidation (winding up)
  • Full termination

2 Resolution

2.1 Reasons for dissolution


The dissolution of a GmbH presupposes that a reason for dissolution exists. The reasons that come into consideration for this are mainly regulated in the GmbH law.
The following circumstances, which can justify a dissolution (so-called dissolution facts), are defined there:

  • Expiration of the period of time specified in the articles of association
  • Shareholders' resolution with a qualified majority of 3/4 of the votes cast, unless otherwise stipulated in the articles of association
  • court decision as a result of an action for dissolution or a legally binding administrative act
  • Opening of insolvency proceedings
  • legally binding decision rejecting the opening of insolvency proceedings for lack of assets
  • legally binding order of the register court, by which a defect in the articles of association, is determined
  • Deletion of the company due to loss of assets


Further legal grounds for dissolution are, for example, a successful nullity action or removal from office, which can take place if the requirements for a nullity action are met.
In this case, the regulations governing dissolution apply accordingly for the purpose of winding up the company. In the partnership agreement, further reasons for dissolution may be determined, such as

  • the omission of an official permit,
  • the expiration of a patent,
  • the death of a partner or
  • the termination of a shareholder.

Although there is no express statutory regulation, a GmbH that holds all shares as its own shares must also be dissolved due to violation of the prohibition of the Keinmann GmbH.

2.2 Legal consequences

If there is such a reason for dissolution, the GmbH is generally dissolved at that time.

  • The dissolution is to be applied for registration in the commercial register immediately, which however only has declaratory - i.e. ascertaining - effect. The registration is to be made by the liquidators (see point 3.1). It must be signed and submitted electronically to the Commercial Register in a form certified by a notary.

2.3 Effects of liquidation

A dissolved GmbH nevertheless continues to exist as a legal entity and trading company.
Only the advertising purpose of the company ends with the dissolution.
The dissolved GmbH aims at the liquidation of the company, i.e. the

  • Termination of pending transactions,
  • Satisfying creditors,
  • Termination of employment relationships,
  • Sale of parts of the company and
  • Distribution of the remaining assets among the shareholders.


The liquidation will be carried out within the framework of the liquidation procedure that will begin with the dissolution.
The dissolved GmbH continues to have legal capacity, party and land register status.
The legal relationships with third parties and the tax liability of the company also remain unchanged. The same applies according to the predominant opinion to a procuration or power of attorney already granted before the dissolution.

The company name must include an addition indicating that the transaction has been settled, such as "i.L.". The fact that the company is now in liquidation must also be indicated on the business letters.

In the majority of cases, company agreements concluded automatically end upon liquidation.
Tax aspects in connection with the dissolution and liquidation are dealt with under point 6.
Section 3 Liquidation.

3 Liquidation


While in insolvency proceedings the insolvency administrator carries out the liquidation, incorporate liquidation the liquidation is carried out by the company's liquidators.

3.1 Liquidators: Appointment, dismissal, registration

Upon the dissolution of the company, the managing directors (so-called born liquidators) become the first liquidators, unless otherwise provided for in the company agreement or a shareholders' resolution. In this case, so-called appointed liquidators are appointed.
Upon application by shareholders whose shares correspond to at least 1/10 of the share capital, the liquidators may also be appointed by the court for good cause.

In order to become a liquidator, a person must meet certain personal requirements that must be guaranteed in the application (e.g. that there are no criminal, trade or professional reasons against the appointment).
Not only natural persons can be considered as liquidators: legal entities or partnerships can also be appointed liquidators.

Liquidators can be dismissed by shareholders' resolution or by the court under the same conditions as when they were appointed.

The liquidators must register themselves and their power of representation - as well as every change of liquidators and every change in their power of representation - for entry into the commercial register.

3.2 Liquidation of the GmbH i.L. by the liquidators

The liquidators must first announce the dissolution of the company in the company gazettes (usually in the electronic Federal Gazette) and at the same time request the creditors to report to the company in this announcement (call to creditors).

For the beginning of the liquidation, the liquidators shall prepare a liquidation opening balance sheet as well as a report explaining the opening balance sheet (for further details see item 5.2).


As general tasks, the liquidators, who represent the company in and out of court, must

  • terminate the current business,
  • fulfill the obligations of the dissolved company,
  • collect the claims of the same and
  • convert the assets of the company into money.


The above-mentioned termination of current business activities refers to the termination of all general business activities. This includes, for example, the termination of continuous obligations. However, if any contracts concluded by the Company are not yet fully and continuously fulfilled, services may be rendered to fulfill the same. The liquidators may also enter into new transactions to terminate pending transactions.

Employment relationships must be effectively terminated.
The cessation of business operations due to liquidation is an internal reason justifying termination for operational reasons.

Although the liquidators must collect all claims of the company, claims against the shareholders are only to be asserted to the extent that this is necessary for the purpose of the liquidation.

The "silvering" of all assets of the company, which can even be done by a sale of the company, is one of the most important tasks of the liquidators during the liquidation.

On the one hand, this provides funds for the repayment of debts, on the other hand, the implementation of the company's assets serves to prepare the distribution of assets among the companies. However, the liquidators are only obliged to convert the company's assets into cash if this is necessary to provide the necessary funds to satisfy creditors. The shareholders may also decide on a real distribution of the objects belonging to the liquidation assets, which will affect their "silver plating" is unnecessary.

After termination of the current business, the collection of all claims, the satisfaction of all liabilities or their securing (deposit or security) as well as after the end of the so-called blocking year, the liquidators shall prepare a liquidation balance sheet, from which the company assets intended for distribution shall be derived, taking into account the remaining expenses. The blocking year begins with the call for creditors.

When the company's assets have been fully distributed, the liquidators have fulfilled their duties and, in addition, the blocking year has expired, the liquidation has ended. Then the liquidators have to apply for registration in the commercial register.
Furthermore, they must ensure that after the end of the liquidation the books and records of the company are placed in the custody of one of the partners or a third party for a period of ten years.

4 Full Termination

In the predominant view, the Company is fully terminated if

  • the liquidation is completed and
  • their deletion is entered in the commercial register.


If, however, after the Company has been deleted, it turns out that at the time of the deletion there were still corporate assets or other liquidation measures are necessary, a so-called supplementary liquidation must be carried out. Any shareholder, legal successor of a shareholder or unsatisfied creditors of the GmbH may apply for a supplementary liquidation.

Section 5 Financial Reporting

5.1 Closing Balance Sheet of the Advertising Company

The closing balance sheet of the Advertising Company shall be drawn up on the day before the dissolution of the company. This applies even if the dissolution does not coincide with the usual balance sheet date - although there is no provision in the GmbH Act in this regard. The preparation of the closing balance sheet of the advertising GmbH is necessary for the determination of the continued book values on the date of liquidation and is also required by the jurisdiction.

5.2 Liquidation opening balance sheet

As mentioned above, the liquidators must draw up a liquidation opening balance sheet and a report explaining the opening balance sheet for the start of the liquidation. The shareholders shall decide on the adoption of the liquidation balance sheet.


For the liquidation opening balance sheet and the explanatory report, the Rules on Annual Financial Statements shall be applied accordingly. The liquidation opening balance sheet shall in principle be prepared within three months of the date of liquidation.

The explanatory balance sheet report replaces the notes and management report and must include explanations on the balance sheet in accordance with the notes. It should also take into account the situation of the company since the following annual financial statements must be supplemented by a management report during the liquidation.

In the case of medium-sized and large companies, the liquidation opening balance sheet and the explanatory report are generally subject to an audit in accordance with the general rules. However, the competent court may exempt from this requirement if the circumstances of the company are so transparent that an audit does not appear to be necessary in the interests of creditors and shareholders.

In addition, the liquidation opening balance sheet and the explanatory report shall be disclosed by filing with the electronic Commercial Register and publication in the electronic Federal Gazette.

5.3 Current Accounting during Liquidation

The GmbH i.L. remains obliged to keep books and to render accounts. The rules existing for advertising companies remain applicable, as far as nothing else arises from the nature of the liquidation.
The GmbH i.L. must therefore prepare during the liquidation procedure at the end of each financial year an annual financial statement (balance sheet as well as profit and loss account).

In addition, a management report must be prepared for each GmbH, according to the wording of the law, regardless of its size. It is controversial whether this is an editorial oversight on the part of the legislator, as it means that even small corporations that are otherwise not obliged to prepare a management report are obliged to do so for the first time in the event of a liquidation.

The annual financial statements and management reports during the current liquidation proceedings are subject - subject to a judicial exemption (see point 5.2) - to the audit of the annual financial statements and are furthermore to be disclosed according to the general rules.

5.4 Liquidation Closing Balance Sheet

If the prerequisites for the distribution of the company's assets have been created, the liquidators must prepare a final liquidation balance sheet, as already mentioned under point 3.2. From this balance sheet, the assets to be distributed are determined, taking into account the remaining expenses.

The obligation to draw up a final liquidation balance sheet is not expressly provided for in the GmbH law. However, it results from § 242 (1) of the German Commercial Code, according to which a businessman must prepare financial statements for the end of each fiscal year in which he presents the ratio of his assets and liabilities. The liquidation closing balance sheet must be supplemented by a profit and loss account.

5.5 Liquidation Closing Statement

In addition to the liquidation closing balance sheet, the liquidators must prepare a so-called final account. This is a purely internal accounting, on the basis of which the shareholders decide on the discharge of the liquidators.

The final account must report on the liquidation process and document the settlement of the assets to be distributed according to the liquidation closing balance sheet. With regard to the preparation of the final account, the liquidators do not have to observe any formal or procedural regulations.

6 Liquidation Taxation

A distinction must be made between tax aspects with regard to the GmbH and with regard to the shareholders.

6.1 Income tax aspects regarding the GmbH i.L.

6.1.1 Corporate Income Tax

The dissolved GmbH is still subject to corporate income tax. The company pays tax on the profit generated in the settlement period.

The winding-up period begins with the dissolution and ends with the completion of the liquidation. During this period, no corporate income tax assessments are made. Instead, the entire winding-up period will be combined. It should be noted, however, that the taxable period should not exceed three years.

To determine the success of the liquidation, the final liquidation assets must be compared to the initial liquidation assets. The final liquidation assets are the assets to be distributed, less tax-free capital gains accrued by the GmbH i.L. during the liquidation period.
The initial assets to be wound up are the business assets on which the assessment for corporation tax was based at the end of the financial year prior to the dissolution of the assessment for corporation tax.

The taxable liquidation profit is subject to corporate income tax at a rate of 15 %.

6.1.2 Trade Tax

The GmbH's trade tax liability also does not expire by the dissolution but remains in force until the end of the liquidation.
The trade income, which is taxable for the is determined for the entire settlement period, shall be distributed over the years of that period.

6.1.3 Income tax group

As already mentioned, according to a controversial but prevailing opinion, any intercompany agreements, including a profit transfer agreement, end upon dissolution of the Company.

This, however, is among other things a prerequisite for a fiscal unity for income tax purposes, in which a legally independent legal entity is integrated for tax purposes into a controlling company.

If one assumes that with the dissolution of the GmbH a concluded profit transfer agreement is automatically terminated, the dissolution thus also means the termination of a previously existing income tax group.

6.2 Income Tax Aspects Concerning the Shareholders

First of all, it should be noted that liquidation payments of the final liquidation assets made by the company to the shareholders are not included in the liquidation costs,

  • either by investment income (payments from retained earnings)
  • or can be capital repayments (payments from the nominal capital or tax deposit account).

By recording the investment income for tax purposes as income from capital assets or as income from business operations, it is ensured that retained profits (open reserves) and hidden reserves in the assets of the company are taxed.

The capital repayments have the function of a sales price, which is missing in the liquidation of the company. Depending on whether the shares are held as private or business assets, they must therefore be compared with the acquisition costs or the book value of the shares, which then results in either a liquidation gain or loss.

6.3 Sales tax aspects


The dissolved GmbH is still an entrepreneur. It can thus continue to make sales subject to turnover tax and remains entitled to deduct input tax. The general rules apply with regard to the declaration obligations.
The distribution of the final settlement assets among the partners is not VAT-exempt because there is no exchange of services.
If the GmbH is the controlling company of a turnover tax group, the group is terminated upon its dissolution. Upon dissolution, the active entrepreneurial activity of the controlling company also ends, so that the liquidating company cannot be supported by controlled companies and thus the economic integration of a controlled company is no longer possible.