How to close a limited company

If you are in the position in which you need to close your limited company, there are several steps involved. I will explain these steps based on the financial situation of the company at the time of closing, and what needs to be done to either make your company dormant or arrange for liquidation or dissolution.

There are several reasons why a business may decide to close. Whether it has reached the end of its useful life, is not making enough profit, or you want to retire, the process of how to properly close your business can be difficult.

Is your company solvent or insolvent?

The process of closing your limited company depends on if your company is solvent or insolvent.

Solvent means that your assets exceed your liabilities, and you are able to pay off any remaining debts. Insolvent, however, means that your company’s liabilities exceed your assets, and you are unable to pay the company’s debts.

If your company is solvent, you will go down the route of company dissolution or solvent voluntary liquidation. If your company is insolvent, you will go through voluntary or compulsory liquidation.

How to close a solvent limited company

If your company is solvent, and able to pay all debts, there are two ways to close the company: Member’s Voluntary Liquidation (MVL) or company dissolution. Company dissolution is generally the easier and cheaper method of closing a solvent limited company.

Member’s Voluntary Liquidation (MVL)

You may choose this method of closing your limited company if your company is solvent, and you decide to retire or step down, and no one else wants to run it, or if you simply do not wish to run the company any longer.

What is the MVL Process

To start this process, you must make a declaration of solvency if your company is in England or Wales. If your company is in Scotland, you will need to fill out form 4.25 (Scot).

A declaration of solvency is a document stating the name and address of the company, the names of all of the directors, and how long it will take for the company to pay its debts (no longer than 1 year).

Once the declaration has been signed by all directors, you will need to have a shareholders meeting to vote on the liquidation and pass a resolution (at least 75%) for voluntary liquidation or “winding down” of the company.

Once a resolution has been passed, you will need to appoint a licensed insolvency practitioner as a liquidator who will pay off debts, sell assets, and distribute the remaining funds.

Company Dissolution or “Striking Off”

Company dissolution also referred to as ‘striking off’, is the quickest and easiest way to close your company. It involves getting your company ‘struck off’ the Companies Register.

In order to go down this route, you must meet certain conditions:

• Your company has not traded in 3 months or more
• Your company has not changed its name in the past 3 months
• Your company is not in or threatened with liquidation
• Your company has no agreement with creditors

If your company does not meet these conditions, then you will have to follow the MVL process. If your company does meet these conditions, you will first have to close down your company properly.

The company dissolution process

To close down your business, you must notify HMRC and any interested parties such as employees, shareholders, creditors, trustees, and directors.

If you have employees, you must make them redundant, pay them their final salary or wages, and inform HMRC that you have ceased employing people.

Finally, you must ensure that all of the businesses assets are divided among the shareholders prior to the company being struck off the register.

Final accounts and tax for company dissolution

In the company dissolution process, you must send final accounts and a Company Tax Return to HMRC. It is not necessary to send them to Companies House.

To do this, prepare your documents, and file your accounts and tax return through HMRC clearly stating that your business will be dissolved soon. When you submit your documents, you will also need to pay off any remaining Corporation Tax or other tax liabilities.

If you take assets from the business prior to striking off, you may be required to pay Capital Gains Tax on them. This can be calculated on your Self Assessment.

How to apply for company dissolution

Once you have properly closed down your business, and submitted your accounts and tax return, you can apply to strike off your company from the Companies Register.

You will need to submit a DS01 form signed by all of the directors to the Companies House. It is important to deal with all assets prior to submitting this form. This includes bank accounts, domain names, etc.

It costs £10 to strike off a company which can be paid by cheque. Once the application is received, Companies House will notify you if it has been filled out correctly, or if they need more information. If the application is correct, your request for company dissolution will be published in your local Gazette.

If no one objects to the request within 2 months, another notice will be published in the Gazette confirming that the company has been struck off and no longer exists.

Who can object a request for company dissolution

Anyone can object to your request for dissolution, however, only valid objections will be upheld and not allow the dissolution to proceed. For instance, if your company owes money to creditors, employees, or HMRC.

If your company has any debts or owes anything to creditors, this must be dealt with before submitting the DS01 form.

Objections to a request for dissolution can be made via email or in writing by post to the Companies House.

How to close an insolvent limited company

If your company is insolvent and unable to pay its debts, you must arrange for voluntary liquidation, or you may be forced into compulsory liquidation.

If you are closing an insolvent limited company, the interests of the people you are indebted to come before those of the company’s shareholders and directors.

Arrange for voluntary liquidation of your limited company

To arrange for voluntary liquidation, also known as Creditors’ Voluntary Liquidation (CVL), you must first have a shareholders meeting and vote on a ‘winding-up resolution’. If it passes by at least 75%, you will need to follow these steps:

• Appoint a licenced insolvency practitioner to be in charge of liquidating the company
• Send the resolution in writing to Companies House (within 15 days)
• Advertise the liquidation in your local Gazette within 2 weeks

Once you appoint an insolvency practitioner, the directors will no longer control the company, and they will need to provide all information to the practitioner.

During the liquidation, the insolvency practitioner will communicate with the creditors, resolve any issues, and fairly distribute assets and proceeds to the creditors.

Once all assets and claims have been dealt with, the company will be struck off the Company Register, and will no longer exist. If there are any remaining unpaid debts, they will be written off unless they were (personally) guaranteed.

Compulsory liquidation of a limited company

If your company is unable to pay its debts, the people or organisations you are indebted to can apply in court to receive the money or assets they are owed. This process is called compulsory liquidation, and can be done by getting a court judgement, or submitting an official request for payment (statutory demand).

If your company is in debt and you think you may be forced into compulsory liquidation, you should consult an insolvency practitioner for advice.

Compulsory liquidation process

When a person, usually a creditor or director of the business, presents a statutory demand or a court judgement for the winding up of your company, this can have serious consequences for the company.

The first step is the person presenting the petition in court. The judge will then decide if it is an appropriate claim to start the liquidation process. If so, the person who presented in court serves the petition to the company and advertises it in the local Gazette. The company has 14 days to respond to a court judgement or 21 days to a statutory demand.

The judge will arrange a court hearing in which the company can either oppose the petition, or the judge will give a winding up order and assign an official receiver to your case who will start the liquidation process.

If the winding up order has been granted, all employees of the business will automatically be dismissed, and may be entitled to redundancy pay. The directors are also no longer in charge of the company or liquidation process.

The liquidator (an impartial officer of the court) will distribute any assets and remaining money to the creditors, or anyone else who is entitled to it.

Advice for closing a limited company

Regardless of how you close your company, you must keep financial records including accounting reports, tax returns, PAYE reports, receipts, and bank account statements for at least 7 years following the termination of your company.

If you wish to see the most up to date processes and advice or find a licensed insolvency practitioner in your area, I would suggest reviewing the information on the UK Government website.