Dissolution and Liquidation of Companies in Chile

Dissolution and liquidation are distinct processes, and it is essential to understand their differences and legal origins, as they play a fundamental role in the life cycle of commercial companies in Chile.

Most companies in Chile are incorporated as “Sociedades,” enabling them to carry out their objectives within the relevant legal framework. This structure ensures that a company’s interactions with its environment, stakeholders, clients, suppliers, competitors, and government authorities are governed by established legal institutions. As a result, companies are better positioned to generate economic and social value, create employment, and deliver other private and public benefits.

Commercial Companies in Chile (“Sociedades”) are defined and regulated by the Civil and Commercial Code, and the most common types are the following:

1. Joint Stock Company or “Sociedad por Acciones”: Offers flexible entry and exit for shareholders, straightforward management, and simplified tax regimes. Shareholder equity is divided and represented by shares.

   
   

2. Public or Private Corporation (“Sociedad Anónima”): Requires at least two shareholders. If public, it is subject to supervision by the Chilean regulator, the “Comisión para el Mercado Financiero”

   
   

3. Limited Liability Company (“Sociedad de Responsabilidad Limitada”): Requires at least two shareholders. Equity is divided into percentages rather than shares, and entry or exit of partners is more restricted compared to other company types.

So, what do we need to understand when we hear the term Dissolution of a Company in Chile?

The dissolution of a commercial company in Chile is a legal mechanism for terminating the company's contract between the shareholders or partners / owners. Following dissolution, the company continues to exist as a legal entity, but its business purpose is limited exclusively to carrying out the liquidation process and preserving its assets until liquidation is finalized.

In essence, after dissolution, the company ceases commercial operations but remains a legal entity solely for the purposes of liquidation.Article 408 of the Chilean Commercial Code puts it nicely and clearly: “Once the company has been dissolved, liquidation shall be carried out by the person appointed for this purpose in the company’s deed or in the dissolution.”

In practice, the dissolution will be formalized through a public Deed before a notary, its registration in the Commercial Registry, and its publication in the Official Gazette.

The second stage, liquidation, is the process by which the company’s remaining legal relationships are terminated and, if applicable, any residual capital is distributed among the shareholders as dividends or liquidation proceeds.Thus, while dissolution initiates the process of ending a company and triggers liquidation, it is the liquidation that formally concludes the company’s existence.

Dissolution is typically a single event (such as a court judgment or, more commonly, a public deed), whereas liquidation involves a sequence of actions carried out by the liquidator—either by mutual agreement or through arbitration—to fulfill its objectives.

The time elapsed between dissolution and liquidation may vary depending on the circumstances and the partners' cooperation.There may be exceptional cases where liquidation may not be necessary at all.

This can happen when there are no pending operations, no significant assets (equity), or, in general, complete agreement among the partners on how to liquidate the company’s assets.In these cases, liquidation as such will be carried out at the same time as dissolution.

Remember that, if the nature of the assets to be liquidated allows it, liquidation may not require legal formalities (such as the sale of real estate), so it could take place at the same time and “In the same place” as  the dissolution.

Dissolution and Liquidation of a Corporation (“Sociedad Anónima”)

Please note that the following rules generally apply, notwithstanding exceptions, partial dissolutions, and extraordinary situations such as the old bankruptcy process, now called insolvency proceedings.

Grounds for Dissolution:i. Expiration of the company’s term of duration.ii. Accumulation of all shares in a single person (individual or legal entity)iii. By agreement at an Extraordinary Shareholders’ Meeting.iv. For causes set forth in the bylaws (freedom of contract)v. Merger.vi. Nullity of the company.vii. By court ruling.

Formalities and the Moment When Dissolution Takes Effect

For a Closed Corporation, the formality will be a Public Deed or the Minutes of the Extraordinary Shareholders’ Meeting before a Notary, registered in the Commercial Registry and published in the Official Gazette. For both shareholders and third parties, dissolution takes effect when the final legal formality required by law has been completed, depending on the specific cause. Generally, this will be the publication.

Effects of Dissolution:

The main effect is that it entails and obligates liquidation, as well as conservation of the company’s assets until the liquidation is complete. By exception, liquidation is not required in cases such as dissolution due to the concentration of all shares in a single shareholder or the dissolution of a company absorbed in a merger, among others.

Liquidation:

i. The company’s legal personality continues. Its business nature changes to the realization of liquidation.ii. The liquidator proceeds to realize (“liquidar”) the company’s assets to pay its outstanding debts and then distribute any surplus, if available, among the shareholders.iii. The company’s bylaws remain in force with respect to liquidation matters.iv. The administrative body is replaced by the liquidator(s).

Dissolution and Liquidation of a Joint Stock Company (“Sociedad por Acciones”)

For this type of company, Chilean law does not provide as detailed a regulation as it does for partnerships (such as “Sociedades Limitadas”.) or corporations. Therefore, general rules of dissolution and liquidation apply.

Grounds for Dissolution:i. Expiration of the company’s term of duration.ii. By agreement of the shareholders.iii. Merger.iv. De facto transformation by law or conversion into a Corporation. This occurs when a Company By Shares, for 90 or more consecutive days, has 500 or more shareholders, or at least 10% of its subscribed capital is held by at least 100 shareholders.v. For causes set forth in the bylaws (freedom of contract)vi. Nullity of the company.vii. By court ruling.

Note that “accumulation of all shares in a single person (individual or legal entity)” is not a ground for dissolution, since a company by shares may have a single shareholder.

Formalities and the Moment When Dissolution Takes Effect

Since it is not regulated by law, the rules for Corporations apply subsidiarily (Art. 424 of the Chilean Commercial Code).

Effects of Dissolution

It leads to liquidation, just like with Corporations.

Liquidation: 

Rules set forth for closed corporations apply.

Dissolution and Liquidation of a Limited Liability Company (“Sociedad de Responsabilidad Limitada”)

As this is a partnership, regardless of its civil or commercial nature (the latter being the case under analysis), the rules differ somewhat.

Grounds:i. Agreement of the partners.ii. Legal cause.iii. Cause set forth in the bylaws.iv. Court ruling.

Formalities and the Moment When Dissolution Takes Effect

The same rules that apply to corporations apply here as well. A Public Deed must be executed, registered in the Commercial Registry, and published in the Official Gazette within 60 days of registration.

Effects of Dissolution

The representation of the company by its administrators ends, the reciprocal obligations between partners and the company cease, the rights of the partners with regard to the company in liquidation become freely transferable, the termination of the tax business must be requested, the legal personality continues through liquidation, and the assets and liabilities must be liquidated in accordance with Article 408 et seq. of the Chilean Commercial Code.

Liquidation:

The liquidator, in accordance with Article 413 of the Chilean Commercial Code, must liquidate the company by requesting an accountability report from the administrator, realizing the assets and liabilities, and finally distributing the profits among the partners.

On a final and extremely relevant note, regardless of the type of Company, it is crucial to first obtain the “Término de Giro” certificate from local Tax Authorities. This is a lengthy, usually sluggish, and tedious process, as Tax Authorities painstakingly review and audit all the books and tax compliance throughout the company´s commercial life.

The number of this certificate needs to be included in the pertinent Dissolution Public Deed.