Incorporating a limited company is one of the exciting ventures for entrepreneurs, however, managing a business is not a bed of roses. A business might be affected by the social, economic or political environment making the owner decide to close down the company.
The decision to close down your company might not always be an easy one, whether due to retirement, financial reasons, or simply a shift in your business strategy. Whatever the decision is, closing down your company is legal.
There are several ways to close down your UK company incorporation depending on its financial and operational position. This guide will walk you through the options, steps, and considerations to ensure you close down your company correctly, efficiently, and compliantly.
Company dissolution vs liquidation
Dissolution and liquidation are different in their process. Dissolution is a voluntary way of shutting down your UK limited company while liquidation is bringing a business to an end and distributing its assets to creditors/ claimants.
Liquidation takes place when a company is insolvent and it involves a liquidator.
Options of company closure
- Solvent Company Closure
If a company is solvent (able to pay its bills) it can alternatively close down through:
- voluntary strike off. This is the most cost-effective solution. Directors of a company can apply to dissolve or close the company voluntarily if they wish to retire and there is no one to take over the company’s management.
The company may also apply for a voluntary strike-off if the company is a subsidiary whose name is no longer needed.
Companies that are no longer trading can choose to apply for strike-off as well.
If you choose to strike off the company voluntarily, you will need to submit a DS01 form.
To strike off using a DS01 form, the company must not have:
- Traded
- Engaged in any activities that require to dissolution of the company
- Sold any properties owned by the business while trading
- Altered its name
If the business was engaged in any of the above activities, it would have to wait for 3 months before starting the strike-off process.
- Members’ voluntary liquidation: Another option is to start a member’s voluntary liquidation process. This means that the company’s shareholders deem the company solvent and resolve to wind up the company for varied reasons including but not limited to the viability of the business.
This is a tax-efficient way of unlocking cash from your business so that your remaining profits are fairly distributed to shareholders as capital and not dividends.
If you liquidate your company through MVL, you may extract all the company assets subject to Capital Gains Tax, rather than Income Tax.
To carry out MVL:
- A special resolution should be passed by the Shareholders of the company.
- A liquidator should be appointed to handle the paperwork.
- Statutory declaration of the solvency of the company should be submitted to Companies House
- The liquidator guides the distribution of the assets among the shareholders. Once the assets are distributed, the liquidator will send a well-detailed document of how the assets were shared to Companies House.
- Insolvent company closure
When your company is insolvent (unable to pay its bills), the interests of creditors take priority over those of directors or shareholders. You have several options:
- Administration: Put your company into administration.
- Striking Off: Apply to get your company struck off the Companies Register.
- Creditors’ Voluntary Liquidation: Arrange for a creditors’ voluntary liquidation.
Assets may be liquidated to pay off creditors before the company is closed. There are different types of liquidation, but creditors’ voluntary liquidation (CVL) is the most common type used when the directors of the company resolve by themselves that the company should cease to exist due to insolvency.
Before you proceed, 75% of shareholders need to agree to a CVL. If a creditor has successfully filed a winding-up petition, the court will order a business to be wound up – this is called a Compulsory Liquidation.
- Make your company dormant
You can let your company be dormant if it is no longer trading. For tax purposes, ensure it is not actively carrying on business activities.
However, you will still have to file certain tax returns to the HM Revenue and Customs (HMRC). The returns will be ‘nil returns’ to show you are not trading.
- Compulsory liquidation by creditors or HMRC
If your company doesn’t reach an agreement with creditors, they may make an application for your company to be closed forcibly. The compulsory liquidation process is always initiated through a court order known as a Winding Up Petition (WUP).
The company must be owed a minimum of £750 and have waited at least 21 days for the debt to have been repaid. The compulsory liquidation will be published in the Gazette once a WUP has been issued to the debtor company.
The public gazette notice may lead to the owed company’s account being frozen leaving it unable to continue to trade.
A Judge will hear the WUP and when a decision to liquidate the company is reached, they will issue a Winding Up Order and appoint an Official Receiver. With the judge’s decision to liquidate the company, trading must stop.
Once the Official Receiver begins the liquidation process, proceeds from the sale of assets, along with any cash held in the company’s bank account, will be enclosed by the liquidator to repay the company’s debts as far as possible.
Following the sale of assets, the company will be officially shut down and its name removed from the register at Companies House. At this point, any outstanding debts will be essentially written off unless the director has provided a personal guarantee.
What to do before a company is dissolved?
After deciding to close your UK limited company, there are things you have to put in mind before you initiate the process. These include:
- Inform all parties about the closure. Employees can only know about the upcoming closure when the founders and the board have agreed.
- Pay outstanding debts. This will help the closure process be smooth and easy.
- Distribute company assets to shareholders according to their shares.
- Complete the last tax return to HMRC.
Closing your UK limited company is legal and it can take up to 3 months to close a company through strike off action while compulsory liquidation can take up to one year. If you anticipate you may want to activate the company again, a dissolved company can be restored to the register for up to 6 years after it is closed.
BusinAssist offers complete company closure service and London virtual address packages at an affordable price. We can assist you close down your company using voluntary strike off without any hassle.
For assistance in closing down your UK limited company, feel free to contact BussinAssist at info@businssist.co.uk.
