CSS — Consulting Company

Although establishing a legal entity in Azerbaijan is relatively easy, the liquidation of an enterprise is a multi-stage process that entails serious legal responsibilities. Upon completion of a project, the need to exit the market, financial difficulties, cancellation of tax incentives, or loss of solvency, companies may face the decision to liquidate a legal entity.

For this reason, business planning should cover not only the start-up phase but also an exit strategy.

In which cases is a legal entity liquidated?

A legal entity may be liquidated for the following main reasons:

Completion of the company’s business purpose
Unsuccessful commercial operations
Cancellation of tax or trade incentives
Insolvency of the company
Compulsory liquidation based on a court decision

In Azerbaijan, liquidation of a legal entity may be carried out on a voluntary or compulsory basis.

Forms of liquidation of a legal entity

Voluntary liquidation

Voluntary liquidation of a Limited Liability Company (LLC) is initiated by a unanimous decision of the participants. Based on this decision, a liquidation commission or a sole liquidator is appointed.

Compulsory liquidation

Compulsory liquidation is carried out solely on the basis of a court decision. It is usually applied in cases of legal violations or unlawful activities.

Stages of the legal entity liquidation procedure

1. Confirmation of solvency

The body initiating liquidation must submit an official declaration from the executive body confirming that creditors’ claims can be satisfied within 12 months.

If this is not possible, an independent auditor may be engaged.

2. Adoption of the liquidation decision

At the general meeting of participants:

A liquidation decision is adopted
A liquidation commission (or liquidator) is appointed
The liquidation period is determined

3. Notification of creditors

The liquidator:

Publishes an announcement in the official press within 10 days
Sends written notices to creditors
Notifies the tax authority and the State Social Protection Fund
At this stage, the company officially receives the status of “in liquidation”.

4. Submission of documents to the tax authority

The following documents must be submitted within 15 days:

Liquidation decision
Declaration of solvency
Document confirming publication of the announcement
The legal entity’s seal

5. Interim liquidation balance sheet

After collecting creditors’ claims:

An interim balance sheet is prepared
Assets and liabilities are reflected
If assets are insufficient, bankruptcy proceedings must be initiated

6. Final balance sheet and distribution of assets

After settlements with creditors:

A final liquidation balance sheet is prepared
Remaining assets are distributed among participants

7. Removal from the state register

At the final stage:

An application is submitted to the tax authority
The legal entity is removed from the state register
The liquidation is officially completed

Important legal considerations

The liquidation process must be completed within a maximum of 12 months
All tax and social insurance declarations must be submitted within 30 days
Liquidation is prohibited if there are ongoing court, administrative, or criminal proceedings
Special liquidation provisions in the charter should be reviewed in advance

Liquidation of a legal entity is not a simple technical process — it is a stage involving serious legal risks and liabilities. Incorrect actions may result in additional financial sanctions and legal disputes.

Therefore, obtaining professional legal support during liquidation saves both time and business reputation.