Dissolution of the company due to expiration of the term

Unlike the Simplified Joint Stock Companies -SAS- which allow to agree in the incorporation document or in any of its amendments an undetermined duration of the company, the types of companies regulated in the Code of Commerce -C.Co.- require the establishment of a specific term of corporate validity.

The expiration of such term constitutes a cause for dissolution of the company, by virtue of which it is dissolved by operation of law and, therefore, in a state of liquidation. Consequently, the effects set forth in Article 222 of the Corporations Code are applicable: "it may not initiate new operations in the development of its object, and it shall retain its legal capacity only for the acts necessary for the immediate liquidation".

In this sense, it is currently found that many companies are registered ex officio by the chambers of commerce as companies in liquidation, due to the expiration of the term for which their legal life was estimated.

From the legal point of view, the causes of dissolution can be enervated by the highest corporate body, within a term of eighteen (18) months counted from its occurrence, however, the cause of liquidation due to expiration of the term does not have the same fate, since, it is logical that, once its duration has expired, the effect that follows is its liquidation, for this, in the corporate contract, such situation was estimated.

According to the provisions of articles 218 and 219 of the Commercial Code, the only way to extend the term of the corporation is to adopt the decision to extend it and carry out the commercial registration before the expiration date is reached.

However, after analyzing the regulations in force to date and the doctrine of the Superintendence of Corporations [1], we find that in the event that the company is in the aforementioned cause of dissolution, it is possible that the Shareholders' Meeting or Board of Partners may accept the provisions set forth in Article 29 of Law 1429 of 2010, regarding the reactivation of companies in liquidation.

It is important to take into account that in order to proceed with such figure, the liquidator must submit to the highest corporate body a project stating the reasons for the reactivation and certifying that the distribution of the remainders to the associates has not been initiated; that the external liabilities do not exceed seventy percent (70%) of the corporate assets; and, the extraordinary financial statements must be prepared and submitted, whose cut-off date may not be more than 30 days prior to the date of the call of the meeting.

The reactivation decision must be adopted by the majority provided by law or in the bylaws for the transformation of companies and, once adopted, the liquidator must, within the following 15 days, communicate this situation to the creditors, so that they may exercise the rights set forth in Article 175 of the Corporations Code.

In the same act of reactivation, the highest corporate body may decide on the transformation of the company to another type of corporation, being necessary to comply with the majorities provided in the bylaws and the Law. In the event that the transformation is to a SAS, the unanimous vote of all the shareholders is required.

By virtue of the foregoing, it is important for businessmen to know that the liquidation of the company due to the expiration of its term does not mean the immediate extinction of the legal entity, but that there is an alternative to give continuity to the company and to the development of its purpose. This decision may be adopted at any time by the highest corporate body, under the provisions set forth in this document.

[1] Official Communication No. 220-125243 of September 15, 2015.