Dissolution - What is dissolution?
Dissolution is a process of closing down a company. It includes distributing assets and striking the company off of the Companies Register.
Thinking of closing your limited company? Check out our blog on how to close a limited company.
Dissolution, also known as “striking off” is formally closing down a company so that it no longer legally exists. Dissolution is the easiest, cheapest, and most common way to close a company.
What is the difference between liquidation and dissolution?
Both liquidation and dissolution represent the process of closing down a company.
One difference is that liquidation can be voluntary or compulsory, based on if your company is solvent or insolvent. On the other hand, dissolution is primarily a voluntary process.
The dissolution process is very straightforward, as you just need to follow a few steps and send a DS01 form to Companies House. Once received, a notice of dissolution will be published in the local Gazette, and if there are no objections, your company will be stricken off the register in 2 months from the initial notice.
Liquidation is a more complex process. Liquidation involves appointing an insolvency practitioner to formally liquidate the company and be an impartial entity to distribute assets and profits among the creditors and shareholders.
You cannot choose between dissolution and liquidation. If your company does not have any debts with creditors, you can go through the dissolution process. If you owe any money or have agreements with creditors, you must liquidate the company.
Due to its complexity, liquidation is more expensive and can cost the company thousands of pounds. Dissolution, however, only costs £10 which is sent to Companies House along with the application form.
Limited company dissolution process
If you have decided to dissolve your limited company, there are a few steps to ensure the process goes smoothly.
Ensure your limited company is eligible for company dissolution
In order to go down the route of company dissolution, your business must meet certain criteria:
- Have not traded in the past 3 months
- Have not changed the company name in the past 3 months
- Have not been in or been threatened with liquidation
- Has no agreement with any creditors
If your company does not meet all of these criteria, you will have to liquidate the business.
Notify HMRC and distribute assets
To start the dissolution process, you will first need to notify any interested parties (employees, trustees, directors, shareholders, etc.), as well as HMRC.
If you have employees, you must pay them their final wages and make them redundant. Then, you will need to notify HMRC that you are no longer an employer.
Prior to submitting the application, you will need to distribute all of the remaining assets among the shareholders. This cannot be done after submitting the DS01 form to Companies House.
Submit your final accounts and tax return
Once you have notified all relevant parties and distributed assets, you will need to submit your final documents to HMRC.
Prepare your documents, and submit your Company Tax Return online to HMRC clearly stating on it that the company will be dissolved. When you submit your return, you will also need to pay the remaining Corporation Tax and any other tax liabilities.
When you distribute the assets, you may need to pay Capital Gains Tax which will be calculated when submitting your Self Assessment Tax Return.
Apply for dissolution
After all of the previous steps have been completed, you can apply for dissolution (striking off) with Companies House.
To do this, fill out and submit a DS01 form and a £10 cheque to the Companies House in your area.
Once they have received the application, they will advertise the dissolution in your local Gazette newspaper. If anyone has any objections within 2 months, the process will be halted.
If no one objects to the dissolution, another notice will be published in the Gazette confirming the dissolution, and your company will be stricken off the Companies Register and cease to exist.
Partnership (LLP) dissolution process
If all partners agree to dissolution, and there are no disputes, you can go through the process of voluntary partnership (LLP) dissolution. This is only possible if the business has no outstanding debts to creditors. This process is also called a partnership strike off.
Ensure your LLP Partnership is eligible for dissolution
To be eligible for dissolution, your LLP partnership must meet the following criteria:
- Has not traded or changed its name in the past 3 months
- Has not engaged in any other activity in the past three months other than for the purpose of dissolution (e.g. cannot sell its products, but can sell the warehouse or delivery trucks)
- Is not insolvent or threatened with liquidation
The LLP Partnership dissolution process
The dissolution process for a partnership is very similar to the dissolution process for a limited company.
First, you must notify all relevant parties and the HMRC, and make your employees redundant. Next, you will have to submit your final accounts and tax return to HMRC and pay off any remaining tax and liabilities. Finally, you will need to distribute any assets prior to applying for dissolution.
Apply for LLP dissolution
Once all of the previous steps are completed, you must fill in and send the Form LL DS01 to Companies House along with a £10 cheque.
Once the Companies House receives and accepts the application, the registrar will publish a notice of LLP dissolution in the local Gazette for anyone to dispute the claim.
If there are no objections within 2 months, you will be notified that the business has been stricken off the register, and will no longer legally exist. They will also publish a second publication in the Gazette confirming the dissolution.
