Closing a Limited Company in the UK: A Comprehensive Guide

How you close your limited company will depend on whether your company is profitable or if it has reached the point of insolvency.

If you're closing down a solvent company, you may apply to get your company struck off the Register of Companies or start a members' voluntary liquidation.

If you're closing an insolvent company, the company will have to be liquidated.

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Closing a limited company is a significant decision that business owners may need to make for various reasons. The process requires careful consideration and adherence to legal procedures, whether due to financial difficulties, changes in business direction, or simply reaching the end of its lifecycle. In this guide, we will dive deep into the various aspects of closing a limited company, including reasons for closing a limited company, methods of closure, dealing with insolvency, striking-off procedures, and more.

There are several valid reasons to consider while closing a limited company. These include:

• Business Inactivity: If the company is no longer generating income or profitable, closure might be the most suitable option.
• Financial Difficulties: Accumulating debts and financial struggles may make closure the best solution to avoid further losses.
• Change in Business Direction: If the company's original purpose has changed significantly, closure might be necessary to realign the business strategy.
• Owner's Retirement or Exit: If the owner or owners are retiring or leaving the business, closing the company is often a logical step.

On deciding to close your limited company, you must apply to strike off your company from the Companies Register. There are multiple methods for the same, but the method you select depends on whether the business is solvent (able to pay its bills) or insolvent (unable to pay its bills).

1. Closing Down a Solvent Company

1. Voluntary Strike Off:

This method is suitable for companies that have stopped trading, have no outstanding debts, and are willing to cease all business operations. To initiate the voluntary strike-off, the company must complete a DS01 form and submit it to Companies House. It costs £10 to strike off a company. Make sure you don't pay the fee amount using a cheque from an account that belongs to the company you’re striking off.

Voluntary strike-off is a way too simple process and usually the best approach when the company's retained profits are below £25,000.

1. Eligibility Criteria:

Before proceeding with the Voluntary Strike Off process, your company must meet certain eligibility criteria:

• The company hasn't traded for at least the past three months.
• The company has no outstanding debts with creditors.
• The company hasn't changed company name within the last three months.
• The company is not undergoing insolvency procedures, such as liquidation or administration.
• The company's directors and shareholders agree to the strike-off.

2. Directors' Responsibilities:

Before applying for a Voluntary Strike Off, the directors have certain responsibilities to fulfil:

• Notify employees, shareholders, creditors and other relevant parties of the strike-off decision.
• Cease all trading and business activities.
• Settle any outstanding liabilities, debts, or legal obligations.
• Ensure that the company's accounts and tax filings are up-to-date.
• Obtain written consent from shareholders, confirming their agreement to the strike-off.

3. Submitting the Application:

Once the eligibility criteria have been met and all necessary preparations have been made, you can proceed to submit the application for Voluntary Strike Off:

• Complete the DS01 form, which is available on the official Companies House website.
• Provide accurate and up-to-date information about the company, its directors, shareholders, and any outstanding details.
• Include a copy of the shareholders' resolution confirming their agreement to the strike-off.

4. Waiting Period:

Upon receiving the application, Companies House will publish a notice in the Gazette, the official public record. This notice is a public announcement of the company's intent to be struck off. There is a two-month waiting period from the date of publication during which interested parties, such as creditors, can object to the strike off if they believe the company still owes them money.

5. Strike Off Confirmation:

If no objections are raised during the two-month waiting period, Companies House will send a confirmation letter to the company's registered office address. This letter confirms the successful strike-off and the date the company will be removed from the Companies Register.

6. Final Steps:

After receiving the strike-off confirmation, there are a few final steps to complete:

• Notify HMRC of the company's closure, ensuring all tax matters are settled.
• Close any remaining bank accounts associated with the company.
• Inform any remaining creditors, suppliers, and business partners about the company's closure.
• Update the company's website and other online platforms to reflect its closure.

2. Members' Voluntary Liquidation (MVL):

When a company is still solvent but the shareholders have decided to cease its operations, MVL is the appropriate way. This method involves appointing a liquidator to oversee the distribution of assets among shareholders after settling outstanding debts. Members’ voluntary liquidation offers a structured and organized approach to closing a limited company while ensuring shareholders receive their fair share of its assets.

1. Eligibility Criteria:

MVL is suitable for solvent companies, meaning they can fully pay their debts within 12 months. To be eligible for MVL, the company must meet the following conditions:

• The company must be able to settle its debts, including interest, within 12 months.
• The company's directors must make a statutory declaration of solvency, stating that they have thoroughly reviewed the company's financial position and believe it can meet its obligations.

2. Appointment of a Liquidator:

The MVL process involves appointing a licensed insolvency practitioner as the liquidator. The liquidator oversees the winding-up process, analyses the company's assets, pays off its debts, and distributes the remaining assets among shareholders.

3. Steps Involved:

Here are the key steps involved in the Members' Voluntary Liquidation process:

• Shareholders' Meeting: The process begins with a meeting of the company's shareholders. They must pass a special resolution to wind up the company and appoint a liquidator. The liquidator can be chosen from a list of licensed insolvency practitioners.
• Statutory Declaration of Solvency: Before the shareholders' meeting, the company's directors must prepare a statutory declaration of solvency. This declaration confirms that the directors have assessed the company's financial position and believe it can pay off its debts within 12 months. The declaration is submitted to Companies House within 15 days of the shareholders' meeting.
• Liquidator's Role: Once appointed, the liquidator takes control of the company's affairs. He reports the company's assets, settles its outstanding liabilities and handles all necessary paperwork.
• Distribution of Assets: After paying off all debts, the liquidator distributes the remaining assets among shareholders in proportion to their ownership stakes. Shareholders receive their distribution as a capital gain, which may have tax implications.
• Reporting to Companies House: The liquidator is responsible for preparing a statement of account detailing the liquidation process, including how the company's assets were realized and how its debts were settled. This statement is submitted to Companies House, and the company is officially dissolved three months after the statement's submission.

4. Tax Implications:

While MVL can offer tax advantages for shareholders compared to other distribution methods, it's important to seek advice from tax professionals to ensure that the process is carried out in the most tax-efficient manner.

3. Dissolution:

For dormant companies with no trading activity and no outstanding debts, dissolution offers a straightforward way to close down. This process involves submitting a DS01 form to Companies House, accompanied by a declaration of solvency. It's essential to ensure all legal and financial obligations are met before proceeding with dissolution.

After Companies House receives the notice, it is published in the Gazette. There are 3 Gazettes, as mentioned below:

• the London Gazette - for companies incorporated in England and Wales
• the Edinburgh Gazette - for companies incorporated in Scotland
• the Belfast Gazette - for companies incorporated in Northern Ireland

Once three months have passed without any objections, the company gets officially dissolved and no longer exists.

To confirm the dissolution, a second notice is published in the Gazette. Make sure that no cash or company assets exist at this point; otherwise, they will become the legal property of the Crown.

2. Closing Down an Insolvent Company

You must arrange the liquidation of your company. In certain circumstances, you may be able to avoid liquidation by applying for a Company Voluntary Arrangement.

1. Creditors' Voluntary Liquidation (CVL):

If your company can no longer pay its debts and liabilities, a creditors’ voluntary liquidation may be necessary. This method provides a formal process for winding up the company's affairs while distributing its assets among creditors. Appointing a licensed insolvency practitioner is crucial, as they will manage the liquidation process, distributing business assets to repay creditors as much as possible.

1. Director's Meeting: The company's directors call a meeting to discuss the company's financial situation. If they determine that the company cannot continue operating and should be wound up, they'll call a general meeting of the shareholders to propose the CVL.
2. Shareholder Approval: A general meeting of shareholders is held, during which they must pass a special resolution to wind up the company and appoint a liquidator. This resolution must be passed by a majority vote of at least 75% of the shareholders' total voting rights.
3. Appointment of a Licensed Insolvency Practitioner: Once the shareholders approve the CVL, a licensed insolvency practitioner (IP) is appointed to handle the liquidation process. The IP takes on the role of the liquidator, responsible for conducting the liquidation in accordance with the law.
4. Creditors' Meeting: The liquidator organizes a meeting of the company's creditors. During this meeting, the creditors can appoint a committee to work with the liquidator and represent their interests. The liquidator also presents a statement of the company's financial position and the reasons for the CVL.
5. Asset Valuation and Realization: The liquidator identifies, values, and sells the company's assets. These assets can include property, equipment, inventory, and other valuable items. The cash from the sale is collected to pay off the company's creditors.
6. Creditor Claims: Creditors must submit their claims to the liquidator, detailing the amount owed to them by the company. The liquidator verifies these claims and ranks them according to the hierarchy prescribed by insolvency laws.
7. Distribution to Creditors: Once all assets have been liquidated and creditor claims have been verified, the liquidator distributes the available funds to the creditors based on their priority ranking. Secured creditors are typically paid first, followed by preferential creditors (such as employees' wage claims and certain tax debts), and then unsecured creditors.
8. Final Reports and Closure: The liquidator prepares final reports, including an account of the liquidation process and the distribution of funds to creditors. Once all obligations have been fulfilled, the company is dissolved and removed from the Companies Register.

2. Compulsory Liquidation by Creditors or HMRC:

When the company cannot pay its debts and creditors are actively pursuing their dues, the court may issue a winding-up order. This initiates a compulsory liquidation process handled by an appointed Official Receiver or an insolvency practitioner. It's important to note that this method is not within the company's control and is typically enforced by its creditors or HMRC.

The cost of closing a limited company in the UK can vary significantly depending on the closure method and the company's specific circumstances. Here's a breakdown of the costs associated with different company closure methods:

• Striking off a Solvent Company: You must pay a nominal £10 disbursement fee to Companies House at the time of the striking-off application submission.
• Members' Voluntary Liquidation (MVL): You must pay fees to an insolvency practitioner (IP), starting from £1500 plus VAT. The exact cost depends on factors such as the complexity of the company's affairs and the amount of work required. You will also have to pay a fee to the Gazette for advertising your company liquidation.
• Creditors' Voluntary Liquidation (CVL): Being the most expansive way of the company closure, the liquidator fees may be charged from £3000 depending on the complexity of the work.
• Compulsory Liquidation: It includes the cost of winding-up petition and other court-related costs.

Managing the complexity of closing a limited company is challenging, but you don't have to go through it alone. The experienced team at Goforma is here to provide you with expert guidance. Our expert accountants can help you make the right decisions, ensuring a seamless company closure while safeguarding your interests. Your company's future deserves the best care possible. Book a free consultation today to talk to an accountant and embark on a successful closure journey.

How long does it take to Dissolve a Company?

The time it takes to dissolve a company in the UK varies based on the method used. Striking off can take 2 to 3 months, while formal liquidation methods like MVL or CVL might take 6 months or more. Compulsory liquidation timelines depend on court processes and can extend beyond a year.

What is a DS01 form?

A DS01 form is a Companies House document used to strike off a company from the register. It's submitted by company directors to initiate the voluntary dissolution process for a solvent company that is no longer trading or has ceased business activities.

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

Immediately. You can start a new one immediately when the company is dissolved.

How to Close a Limited Company that Never Traded?

If your limited company is dormant or has never traded, you can close it immediately. As the company has no assets and current liabilities, an application for dissolving your limited company would be appropriate when a company has never traded. You should seek professional advice if you or the directors have doubts about the assets or liabilities.

What is a Compulsory Strike Off?

A compulsory strike-off is a process initiated by Companies House to dissolve a company that has failed to fulfil its legal obligations, such as submitting annual accounts and confirmation statements. It usually happens when Companies House believes the company is no longer operating.

How to Close a Limited Company with Debts?

If your company cannot afford to pay its bills or debt, you can close a limited company by putting it into administration, arranging a creditors’ voluntary liquidation, or applying to the court for compulsory liquidation.

Can I Re-open a Previously Dissolved Company?

Yes, you can restore some dissolved companies by applying for a court order or by administrative restoration. If the company was struck off by voluntary dissolution, the company could only be restored by court order.

Do I need to notify HMRC if I want to close a limited company?

Yes, you need to notify HMRC when you want to close a limited company in the UK. This notification process ensures you've met all your tax obligations before closing a limited company. You should inform HMRC that your company is ceasing trading, and you'll need to settle any outstanding taxes, including Corporation Tax liabilities, VAT, PAYE, and National Insurance contributions. You may also need to pay Capital Gains Tax if you dispose of any business assets. Depending on the circumstances, HMRC might issue a final Corporation Tax return, and you'll need to ensure all tax affairs are properly concluded before proceeding with the closure process.