El Salvador | Corporate Dissolution & Liquidation
Luisa Rivas and Adán Araujo, experts in Corporate and Commercial Law, present this article on the dissolution and liquidation of corporations in El Salvador, a process crucial for protecting shareholders, creditors, and third parties.
The dissolution of a joint stock company is a process as decisive as its incorporation. Dissolution and liquidation in El Salvador are primarily governed by the Commercial Code, which regulates an orderly transition toward the extinction of the legal entity. It's not a single act but a sequence of acts whose correct implementation guarantees legal certainty for shareholders, creditors, and third parties.
The law establishes the following as causes for dissolution: the expiration of the company's term, the impossibility of fulfilling its purpose, a substantial loss of capital, or a resolution by a shareholder meeting. The recognition of any of these causes must be adopted by the shareholder meeting and formalized in accordance with the law. If the shareholder meeting refuses to acknowledge an existing cause, any shareholder or third party with a legitimate interest can judicially demand the declaration of dissolution. Thus, in El Salvador, there is no automatic extinction of corporations.
The regulations clearly distinguish between dissolution and liquidation. The first marks the beginning of the closure and produces immediate effects: the registration of the resolution in the Commercial Registry, the cessation of the administrators' powers, and the prohibition of new operations, under penalty of personal and unlimited liability. This resolution must be published in both the Official Gazette and a national newspaper. The second, liquidation, constitutes the operational phase: concluding pending business, settling obligations, and distributing the remainder among the shareholders. The legal term cannot exceed two years, and the liquidators act as representatives of the company in liquidation. Among their duties is the preparation and publication of the final balance sheet, an essential requirement for obtaining tax clearance from the Administration, following an audit.
The Salvadoran system incorporates additional control mechanisms, such as the obligation to appoint a tax auditor for each tax period, from the registration of the dissolution resolution until the conclusion of the procedure. The corresponding opinion and report must be presented within the month following the approval of the final balance sheet.
Non-compliance with these formalities carries severe consequences. Failure to inform the Tax Administration within fifteen days following the dissolution or liquidation resolution exposes the company and the liquidator to economic sanctions. Even more seriously, the omission in the liquidation process can transfer responsibility to the shareholders, since the cessation of the company's operations does not extinguish its tax and third-party obligations.
An orderly closure demands rigor in every phase: from the adoption of the dissolution resolution to the registration of the liquidation deed, including the proper liquidation of assets and liabilities. Currently, the care taken by shareholders in ensuring the correct dissolution and liquidation of corporations that have ceased operations not only protects their assets but also demonstrates a culture of compliance, transparency, and respect for the legal framework.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.