GT News

Taxes, accounting, law and more. All the key news for your business.

| April 22, 2024

There are reportedly around 100,000 zombie companies already. For the statutory body, they represent a ticking bomb

Share article:

Unofficial research shows that one in five companies in the Czech Republic is dead, meaning that it does not perform any activity because the entrepreneur simply shut it down and no longer cares about it. Nevertheless, such companies are still registered in the company register.

At first glance, such a solution may appear comfortable. The company ceases to fulfil its purpose, so the entrepreneur leaves it to its fate. It is cheap, it is fast and everyone does it. But even a dead company must fulfil its legal obligations. For example, filing financial statements in the collection of documents of the Company Register, filing tax returns, etc.

The statutory body of the company, which is legally obliged to act with due care, is responsible for ensuring that all obligations are fulfilled. Failure to do so exposes the statutory body to the risk of civil or even criminal liability. The zombie company is therefore a timed threat to it. And the statutory body will certainly not absolve itself of any liability by arguing that the company did not actually carry out any activity.

So what to do in such a situation? There are three basic ways to resolve the situation.

Liquidation. If the entrepreneur has no further use for the company, it is logical to send the company into liquidation. It is the neatest way to say goodbye to the company forever with dignity. Although the liquidation process will usually take several months and involve a number of administrative and accounting steps, at the end of the process the company will disappear from the company register and the entrepreneur will no longer need to worry.

Insolvency. The shut-down company may be in bankruptcy. In such a case, it is no longer possible to liquidate the company, but an insolvency petition must be filed. If all goes well, the company can be removed from the company register after the insolvency proceedings are completed. However, insolvency can be unpleasant for the statutory body – if it has breached its legal obligations, its liability may still come into question.

Sale of the company. Clearly the quickest solution is to sell the company. Assuming, of course, that someone is interested and there are no skeletons hidden in its closet. If all goes well, one contract will settle the sale.

Leaving the company shut down may seem like the easiest solution. Nothing may happen for a long time. But then a problem may appear that may bring you a lot of vexation.

If you want to prevent it, do not keep a zombie company artificially alive. You will make life easier for yourselves.