How To Close a Limited Company

Whether you’re getting ready to retire or have hit a financial slump, closing a limited company is definitely an option. However, before you do so, understanding how to close a limited business is contingent on a number of things.

Firms that are unable to pay their bills or have directors who have opted to close the company are just some of the scenarios to consider. You might also want to think about whether or not you might wish to free up assets from an existing company to fund a new initiative, or you might want to dissolve a subsidiary that no longer serves a purpose.

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While it may be simple to start a limited company, understanding what’s involved in the closure of a limited company isn’t as black and white as it may seem. So, we’ve broken down the details and options for you. Read on to learn more about closing your limited company the proper way while protecting yourself and securing your assets.

Table of Content

Solvent or insolvent: What is the difference?

A corporation that is solvent is one that can pay its debts and is not facing legal action from creditors.

Insolvent companies, on the other hand, may lack sufficient finances, have more liabilities than assets, or be under pressure from creditors.

How to test for insolvency

According to Section 123 of the Insolvency Act 1986, there are three tests to help determine if a company is insolvent:

  • The Cash Flow Test – This determines whether or not the corporation can pay its debts when they are due.
  • The Balance Sheet Test – This test checks if the corporation owns more than it owes or if the assets are greater than the liabilities.
  • The Legal Action Test – This checks if the creditor has taken any legal action against the company.

How to close a Solvent Limited company with a strike-off

If you can pay your expenses, a company strike-off is frequently the most affordable and expedient way to liquidate a business. A DS01 form, also known as a Voluntary Strike-Off, is used to ‘Strike Off’ a corporation.

When a third party petitions for your company’s closure, it’s called a Compulsory Strike-Off. The failure to return accounts or annual statements usually triggers this third party, which is usually Companies House. Either way, you can try to salvage the situation or go through the strike-off process.

A strike-off is not the same as a legal liquidation. The business may be placed into compulsory liquidation if you do not pay your creditors. However, you can avoid liquidation by submitting an application for a Company Voluntary Arrangement (CVA).

Members Voluntary Liquidation (MVL)

A Members Voluntary Liquidation (MVL) is a formal process for wrapping up the operations of a solvent company and transferring any excess assets to members before it is deregistered.

Can I do a Members voluntary liquidation by myself?

Unfortunately, this is not a process you can do by yourself. You must get the advice and help of an authorised insolvency practitioner to do it.

Letting Your Company Go Dormant

As long as your business isn’t trading, you can let it go dormant. This means you won’t be able to receive any money or engage in any business activity – but you’ll still have to send Companies House your yearly accounts and confirmation statement.

You can keep a limited company dormant for as long as you desire.

How to close a limited company and start a Voluntary Company Strike-Off

Closing a company takes time, and this varies depending on the size and complexity of your business. Before you begin the strike-off or dissolution process, there’s a formal process you’ll have to follow, such as those listed below:

Paying employees their final wages or laying them off.

  • Make sure the staff are paid their final wage or make them redundant.
  • Any firm assets should be sold, with the proceeds going to the shareholders.
  • Put a stop to all utilities.
  • Domain names should be transferred.
  • Prepare final company accounts and tax returns and send them to HMRC and Companies House, along with a letter of intent to terminate the company signed by the directors.
  • Any tax owed to HMRC must be paid.
  • Request that HMRC closes your payroll.
  • For VAT purposes, you will have to deregister.
  • Close the business’s bank accounts.

What is a DS01 Form?

This form is used to formally dissolve or strike off an unwanted company. That means its name will be removed from the Companies House register and it will no longer legally exist. To complete this form, you’ll need the following information:

  • Company name
  • Company registration number
  • Signatures of the company’s officers authorising the strike-off

What happens after I file the DS01 Form?

After you hand in your DS01 form to Companies House, they’ll verify the information and send their confirmation by post. They’ll then publish a notice in the London, Edinburgh, or Belfast Gazette, depending on where your business is based.

Following that, interested parties have three months to object to the strike-off. This is why it’s critical to keep correct records and pay off obligations.

Conditions When Using a DS01 Form

Since the DS01 Form is a legally binding document, there are certain conditions you must adhere to when filing it. You cannot perform any of the following for three months after submitting the form:

  • Trading (you will have to cease trading)
  • Changing the name of the company
  • Engaging in activities other than those involved in dissolving the company or legal requirements.

DS01 Form Cost

The form costs £10. However, if you complete it on the Companies House website, you can get it for a discounted rate of £8. Alternatively, if you complete it offline, you’ll need to send the form along with a cheque to Companies House via post.

However, if you use a company bank account to pay for this, it may be considered trading which isn’t allowed.

Qualifying for Voluntary Strike-Off

There are certain conditions you’ll need to meet in order to qualify for a Voluntary Strike-Off. These conditions include:

  • There can’t be any outstanding liabilities.
  • There can’t be any petition to wind up the company or any other insolvency proceedings.
  • There can’t be any outside arrangements with creditors, such as a CVA.

You should note that if your company does have outstanding liabilities or debts and you cannot settle them, that makes the business insolvent and you may be forced into liquidation.

Who do I need to tell about a Company Strike-Off?

Within seven days of receiving a DS01 form from Companies House, you must notify interested parties. Parties who have been notified include:

  • Company employees
  • Creditors
  • Directors who haven’t signed the DS01 form
  • Employee pension fund managers or trustees
  • Shareholders

What happens if I do not notify interested parties?

You may face prosecution or a fine if you don’t follow these steps or any of the measures indicated in the Strike-Off procedure. It will also cause the Strike-Off to be delayed, and parties who were previously unaware of the Strike-Off may now object.

Dissolution

Dissolving a company means striking it off the Companies House register, meaning it will no longer legally exist. After the strike-off of a company, you aren’t allowed to trade or carry out any transactions using that limited company.

Now, dissolution is only an option if the capital gain released is £25,000 or less. Before you go about striking off your company, you’ll have to follow this process:

  • Tell HMRC and any interested parties about your plans to strike off your limited company.
  • Settle the outstanding debts and deal with the transfer or sale of company assets.
  • File your tax returns and prepare cessation accounts.
  • Deal with your employees accordingly.

Is dissolution the right solution for my company?

If you’ve decided that you no longer want to trade using your limited company, or if you set it up for a certain set of purposes that have already been met, then dissolution is a good option. Striking off is frequently the simplest thing to do if you have no intention of trading through this firm and there is a cash excess.

What records do I need to keep after my company has been dissolved?

Legally, you’re required to have the following records after the dissolution of your business:

  • Business documents – These should be kept for at least seven years minimum.
  • Employee records – These include the employer’s liability policy and schedule and these must be kept for at least 40 years.

How soon can I start another company after a Strike-Off?

There’s nothing prohibiting you from starting another business immediately or at any stage along the process.

It’s also possible for the company to have a change of heart. If the directors change their minds, they must withdraw the application by submitting a “withdrawal of striking off application by a corporation” to the registrar.

How can I close a limited company that has never traded?

The process is pretty straightforward if your limited company has never traded or has been dormant. An application for dissolving your limited company is typically appropriate for companies that have never traded. This is because it’s likely they don’t have assets and no current or contingent liabilities.

Liquidation is also seen as an adequate option if the company has never traded but has outstanding liabilities, like an initial loan.

How to close a limited company with existing debts?

If your limited company owes money or is failing due to unmanageable debts, then liquidation may be a way of clearing any outstanding debts, restarting your business, and possibly having better relationships with creditors.

However, there are several rules and restrictions you need to consider. These prevent directors from escaping the debt and consequences of the old company and making a new one instead.

Insolvent companies have 2 ways to carry out liquidation:

  • Creditors’ Voluntary Liquidation (CVL)
  • Compulsory Liquidation

Creditors Voluntary Liquidation (CVL)

This process is initiated by the company shareholders with the intention of selling the assets to repay creditors after closing the company. An insolvency practitioner will act as an authorized liquidator, but since the process is voluntary and not court led, the company directors have the right to decide who the insolvency practitioner will be.

As part of the company rescue process, the shareholders will also have the chance to buy off the assets and the goodwill of the business.

Compulsory Liquidation

Compulsory Liquidation, commonly known as “winding up,” is a process under the Insolvency Act that allows a creditor to force an insolvent business into liquidation in order to recover a debt.

When a corporation is unable to pay its creditors on schedule, it is usually considered insolvent. But first, the disgruntled creditor will file a petition to dissolve the business.

Even after the Compulsory Liquidation procedure has begun, CVL may still be possible. However, instead of the creditors, the company’s directors initiate this process.

What are the restrictions on starting a new company?

When you start a new firm after ending an old one, you must submit an application to Companies House. When terminating a debt-ridden firm and starting a new one, there are some limitations to consider. The following are some restrictions to consider:

  • Reusing the name of your old company
  • Paying HMRC a security deposit
  • Selling assets and goods
  • Transfer of employees
  • Debt guarantees
  • Limited Credit Accounts

What are my responsibilities when I close my limited company?

Limited company closing isn’t always straightforward, and there are a few additional tasks to do, like those listed here:

Deregistering for VAT

If the business is VAT registered, you’ll need to fill out a VAT form 7 to notify HMRC of your decision to deregister.

You can find more information here if you are unable to pay your VAT.

Corporation Tax

Failing to notify HMRC that your business has ceased operations could mean that you still receive reminders to pay your corporation tax.

Capital Gains Responsibilities

It’s possible that part of the equipment you bought is owned by your limited business if you’ve been operating via one. If your business closes, you’ll have to sell these assets or transfer ownership to yourself, and you’ll have to account for the sale at market value. On your self-assessment tax return, you must account for the capital gain you received when your firm closed.

FAQ’s

What is more tax-efficient: Voluntary Strike Off or an MVL?

If the retained profits are less than £25,000, Voluntary Strike Off is usually the best option, as it saves money on a liquidator. MVL is typically the more tax-efficient alternative if retained profits exceed £25,000.

See the most tax efficient way to close your company here.

Can I close a company without a director?

A new director must be appointed before the company can be closed if it lacks a director. Although a company with no directors will eventually be struck out by Companies House, this can present issues with asset management.

How can I let HMRC know my company has become dormant?

Within three months of a firm becoming dormant, HMRC should be notified. This can be done either by mail or by phone using the 10-digit Unique Tax Reference.

Alternatively, HMRC will mail a CT41G form to the registered office address of a newly created company. This form should be filled out and delivered to HMRC so they can be notified that the company is dormant.

When is a voluntary strike-off not allowed?

If your company is already insolvent or subject to a section 895 scheme of the arrangement, you cannot apply to have it struck off.

Why Choose Voluntary Insolvent Liquidation?

In the event of an insolvent company, voluntary liquidation means the directors are attempting to reduce the risk to creditors, which is the correct thing to do in an insolvency situation.

How much does it cost to close a limited company UK?

An MVL is usually associated with a liquidation charge which is generally about £1500 with additional VAT depending upon the complexity of the process. CVLs can usually be a very expensive option to close a company and typically cost around £3000 to £7000.

However, if a business has been dormant and has no liabilities or assets, you’ll only be charged a fee of £10. This is payable to Companies House upon the completion of the DS01 form.

We have more information on cheap liquidation options here.

How quickly can you close a limited company?

The creditors’ objections may arise at the end of three months from the date of the application for the dissolution of the corporation. Due to the structure and complexity of your business, the procedure will usually be considerably longer and the results will be much better. Within the three months, creditors have the right to object.

Thinking about closing your limited company?

Are you looking for the best way to bring your limited company to an end in the simplest, most stress-free way? Well, there are various ways to go about closing your business. Whether the company is solvent or insolvent at the time of closure will greatly affect the closure process.

So, if you’ve already tried and had a strike off suspension from HMRC, then let us help you out. You can get in touch with our team today to find out more. Reach out to us today and get a FREE initial consultation.

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