Corporate / M&A

Suspending the Activity of a Moldovan Limited Liability Company: Is it Worth it?

Why should one know about suspending the activity of a Moldovan limited liability company (LLC)? What are the steps to be followed? What are the pros and cons?

Generally, apart from dissolution (liquidation), an LLC can temporary suspend its activity for a period that may not exceed three years as of state registration of suspension. Starting with the date of state registration of suspension, an LLC is not required to submit any reports with the Moldovan authorities or pay any taxes.

Procedure

Corporate decision

The procedure is initiated on the basis of an LLC’s shareholder(s) corporate decision (protocol or decision of the sole shareholder; Decision). The Decision has to be in due form and provide for the exact period of suspension. It must also be accompanied by an empowerment listing persons that will carry the legal/other formalities.

Simultaneously / prior to / immediately after the Decision, it is advisable that the LLC summarise information on its current creditors and pending contractual relations. This can be effected via a legal due diligence. An exhaustive creditors’ list and contracts-to-be-addressed list are crucial for the success of the entire procedure.

Notification of creditors

Next, the LLC must notify in writing all creditors about its intention to suspend one month prior to publishing the Decision in the Official Gazette (OG). In practice, we recommend that original notices by the LLC be kept for any possible later dispute(s) with creditors.

In the period that follows the notification and prior to state registration, the LLC must settle all relations with its creditors and terminate or restructure its contractual relations with third parties.

Publication

Additionally, the LLC must publish the Decision in the OG. From the day of publication, a two-month period starts running for creditors to raise their claims against the suspension.

Labour formalities

Moldovan law is protective towards employees. It is crucial to solve the labour issue prior to state registration of suspension, since a failure to address this will leave a risk that the suspension is annulled later.

Employees’ labour agreements can be suspended with their consent (Article 77 Labour Code). Should employees however disagree to suspend their labour relations, unilateral termination option(s) by the LLC should be considered (collective dismissals, etc.).

Tax audit

A suspension can be legally registered after a state tax audit confirms that the LLC has no debts to the state budget(s). Usually, an application to be subjected to a tax audit is filed with the tax inspectorate after publication in the OG.

Depending on the exact activity of the LLC, a state tax audit may last from one week to up to two months, sometimes even longer.

The audit ends with a verification act and a confirmation of absence of debts towards the Moldovan state.

State registration of suspension

Following the expiry of two months after the publication with the OG, the LLC files an application with the Moldovan trade register (Camera Înregistrării de Stat; TR). If the application complies with the law and there are no objections from creditors, the TR takes effect with the corresponding state registration with the State Register of Companies and suspends the LLC for a concrete period (but not exceeding three years as of the date of state registration).

Reporting and taxation duties

Starting the day of state registration of suspension, the LLC is not required to submit any reports with the Moldovan authorities or to pay taxes, except for the real estate-related reports. Real estate taxes are to be paid immediately after the LLC restarts its activity.

During the suspension, the LLC may not perform any commercial activities under threat of liability (administrative and penal) and risk to repay the caused prejudice.

Retaking activity

An LLC may decide to cancel its suspension, through its competent body, at any time (including before expiry of the initial suspension period). The decision to restart the activity is to be filed with the TR accompanied by an application and enclosed as regulated.

Should in the course of a suspension a creditor with claims be discovered (and files a complaint with the TR), the TR must annul the suspension (Art.30(9) Entrepreneurship Act).

Pros of suspending the activity of a Moldovan limited liability company: (i) keep a company non-operational without liquidating it; (ii) quick to implement; (ii) easy to restart activity. Cons: (i) may prove as expensive and time consuming as a liquidation (eg, in case of labour or tax issues); (ii) can be annulled also by creditors.