Has the craftsman given up his business

Giving up self-employment: This is how the company cessation works

 

Change from self-employment back to an employee relationship?

The change from self-employment back to an employment relationship is often viewed by the environment as a personal failure. Nevertheless, the main reasons for a change can be varied: The desire for more security and less financial responsibility is one of the main reasons that people want to switch back to an employment relationship. But earnings that are no longer sufficient can also be the cause of the desire for change. However, many people give up their independence for more gratifying reasons, for example because their children are out and about and they want to take parental leave. If self-employed people want to return to statutory health insurance from private health insurance, giving up self-employment can help in most cases. If bankruptcy is imminent, attending a debt counseling service can help you close down your business. But even if there are problems in your own company that do not yet represent a risk of insolvency, a business termination can be an option for the founder.

According to studies, sole proprietorships are particularly willing to switch: According to calculations by the German Institute for Economic Research (DIW), every fifth solo self-employed person switches back to an employment relationship.

firma.de provides you with the right tax advisor: Regardless of your legal form or industry you receive specialized advice on all tax issues - also with regard to an operational cessation.

If you want to give up your business, you should bear in mind that giving up self-employment extends over a longer period of time, so an “overnight change” is legally not possible. The preparation of a closing balance sheet, the sale of hidden reserves or their transfer to private assets must be prepared and carried out. The termination of current contracts and employed employees also takes a certain amount of time.

 

Abandonment of self-employment: permanent abandonment or pause of the activity?

If the business is making less and less profit, you are looking for a suitable successor or you simply need a break from your self-employment, there is the possibility of registering a dormant business in addition to the final abandonment of the business. With a dormant business, the self-employed lose their tax advantages. Nevertheless, a dormant business can have clear advantages over the complete cessation of operations, for example a relief for the entrepreneur. But even if, contrary to expectations, you want to start your business again, you are flexible and can quickly "reactivate" your business. This option can be attractive if you pause your self-employment during parental leave and want to resume it after a while.

 

Liquidation vs. abandonment

Companies are wound up by being dissolved, liquidated and finally deleted from the commercial register. While in corporations such as the AG, GmbH or UG the task of operation is usually referred to as liquidation, in the case of a GbR one speaks of a dissolution. Although sole proprietorships and freelancers also have to liquidate their assets, the term “liquidation” is rarely heard in this context.

More on dissolution and liquidation

Task of self-employment as a sole proprietorship or freelancer: This is how it works

Once again on the definition of the operational cessation: An operational cessation exists in the following cases:

  • When you finally cease your self-employed activity
  • When your business ceases to exist as the "living organism" of economic life
  • If you sell all the essential foundations of the business or transfer them to your private assets

Short: You need your entire Give up business and thus all Selling essential operating bases in a single process or transferring them to your private assets - provided you want to benefit from various tax advantages. You can find more about tax benefits in the article below.

If you want to give up your business, you do not have to report to the tax office immediately as soon as you cease operations, since the business closure covers a period and not a point in time as a reference date. So you can collect outstanding claims and handle your business in peace. You have a time window of six to twelve months for this. Anything that takes longer no longer counts as an operational task as a whole.

The first step towards discontinuing operations is to draw up a final balance sheet and determine the profit from the discontinuation of operations. The gain on posting results from the sum of the hidden reserves, minus any posting costs such as tax consultants, lawyers, brokers, etc. It is important to have a trusting relationship with the tax consultant and other experts. A timely change can therefore be valuable. The hidden reserves, i.e. land, furnishings or company cars, make up the profit from the posting, as they are usually shown in the balance sheet with a lower value than the market value. This realistic designation can result in increases in value when the business is closed and hidden reserves are given up, especially in the case of company property, the value of which is continuously increasing. For example, if you want to take your company car into your private assets, its market value is estimated - this also applies to renting out the business premises from private assets.

Adjustment of advance payments

Before you go out of business, you should definitely apply for the income tax prepayments to be reduced to zero, otherwise the tax office will continue to charge you higher amounts. The tax office receives a notification of your business de-registration, but does not automatically change the prepayment contributions.

Operational task and employees

Before you lay off employees, you should check carefully whether it is not a legal transfer of your entire company or just part of it. This has different legal consequences than if the company ceased to operate. Furthermore, you should inform yourself in advance about the various options for terminating an employment contract: In addition to termination, there is, for example, the termination agreement, which may let you and your employees out of an unfavorable employment relationship more quickly. Please note, however, that long-term employees can be given notice of up to seven months.

If you have to terminate trainees, you should note that as a trainer you may be obliged to endeavor to continue your training in another suitable company in good time, ideally with the help of the Employment Agency.

If you employ more than 20 people, find out in good time about the regulations as of when you can contact the Employment Agency with regard to a so-called Mass layoffs need to notify.

Terminate long-term contracts and insurance

If you go out of business, you should not forget to terminate long-term contracts and insurance. Read about this in the relevant contract documents to find out what the notice periods are and whether you may be given an extraordinary right of termination as a result of the cessation of business.

The contracts to be terminated include delivery and service contracts (electricity, internet, water, etc.) and your rental or lease agreement. But your business account and standing orders are also among the contracts that you have to terminate if you close your business. You should also cancel advertising contracts and notify Deutsche Post. Your current credits or loans must also be redeemed, canceled and, if necessary, repaid promptly.

The operational cessation must also be reported to your health insurance company, as your monthly contribution will now also change. For self-employed people who give up their work and have previously been privately insured, the company closure offers the opportunity to switch back to statutory health insurance.

In addition, your employers' liability insurance association must be informed within two weeks of cessation of business, as must the pension insurance. Please note that you should act quickly with the insurance you have taken out. Company insurances such as company liability must now also be terminated.

Cancellations, changes and deletions

For sole proprietorships, deregistration is now pending at the regulatory office, i.e. business deregistration. If you carry out a profession that requires a permit, you are obliged to return the permit. If you are registered in the trade register, you must apply for deletion. You may need to have your entry in the commercial register deleted; this can only be done by a notary. Furthermore, it must be reported to the tax office that the self-employed activity will be given up.

Freelancers have it a little easier here, because they only have to report the above points to the tax office.

Company vehicles have to be re-registered or sold, remaining goods have to be sold in a clearance sale and the rented premises may need to be renovated.

Retention obligation when the company is closed

Even if you go out of business, you are obliged to keep all business records long enough. So before you destroy all files, wait for the statutory retention periods.

Giving up a company: Tax peculiarities of a business end

When you give up your self-employment, you can benefit from various tax peculiarities when selling your business and when you lose your business. For example, a company sale as a whole may be exempt from sales tax. You can also benefit from a tax-free allowance on your income from posting. You can find out which tax advantages you have in detail in our article on the sale of the business as a whole.

 

Tax traps when closing down the business

If you don't give up your self-employment in one short, cohesive process, this is it no uniform economic process more and thus you no longer have a tax-privileged posting profit. How long a reasonable period of time may be in order to still be considered uniform varies from case to case. As a rule of thumb, a period of around three months for current assets and up to ten months for the sale of fixed assets can generally be assumed. However, if the operating fundamentals are only to be quickly transferred to private assets, the task is only considered to have been effected when the sale to a third party has been completed. This way is a method to keep the processing period short and then to sell the operating fundamentals to third parties a little later.

Sales ban and main residence exemption

If you transferred your place of business to your private assets when you closed down your business, a five-year ban applies before you can sell the building to third parties without additional taxation on the sales proceeds. If you do not pay attention to the sales block, you have to factor in the subsequent taxation. This can be done either through real estate tax (25%) or, if you choose, through income-related standard taxation.

 

The information published on our site is all written and checked by experts with the greatest care. However, we cannot guarantee that it is correct, as laws and regulations are subject to constant change. Therefore, always consult a technical expert in a specific case - we will be happy to put you in touch.

firma.de assumes no liability for damage caused by errors in the texts.