I Want To Close My Company
There are many reasons for wanting to close down your limited company. Some of the most common reasons are;
- For retirement purposes.
- To repay capital to shareholders
- Becoming a sole trader
- Due to the company’s financial difficulties.
- The company is no longer needed as the directors now have permanent employment
How Does A Limited Company Close Down?
How a company is closed down depends very much on its financial situation, its solvency and whether it is trading or not.
It can be closed by the directors whether it is solvent or insolvent in 4 main ways.
- Members Voluntary Liquidation (also known as solvent liquidation). If it has no debts but more than £25k of assets it can be closed using a members voluntary liquidation.
- Creditors Voluntary Liquidation. If the company is insolvent and unable to pay its debts, then under director and shareholder control it can enter into creditors voluntary liquidation.
- Compulsory Liquidation; this is usually initiated by a creditor, such as HMRC, by issuing a winding up petition in the Court to have the company compulsorily liquidated.
- Voluntary Dissolution, can be used if the company has no assets, it has no debt or minimal debts and it hasn’t traded for 3 months.
Member voluntary liquidation (MVL) is usually used after all creditors, corporation tax and other liabilities have been paid, final accounts have been filed and corporation tax returns have been filed. It can be a tax efficient method to return capital to shareholders. This option can only be done by a licensed insolvency practitioner.
Members Voluntary Liquidation (MVL)
- This is a formal process used to close a solvent company.
- Licensed insolvency practitioners are called in to aid the company in turning assets into cash.
- The money received from this is then equally distributed to the company shareholders.
- Directors may be able to claim Business Asset Relief if there is £25k or more cash.
- Members receiving this money are taxed using capital gains tax rather than dividends.
- To claim relief, the directors must declare that the company can pay for everything, including the cost of liquidation, in full.
What if there was a way we could quickly get on with closing our unwanted company?
To help with the formal process, call our experienced licensed insolvency practitioners on 0800 9700 539.
If your limited company owes money to creditors, and its debts are more than the value of any assets then the most common option chosen is creditors voluntary liquidation (CVL)
The company can commence the liquidation process but, again, it can only be done by a licensed insolvency practitioner
If you would like to discuss how to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings. This is the most common way to close a company.
Compulsory Liquidation
A creditor can apply to the court for your company to be wound up by issuing a winding-up petition. This will bring an end to the company as a winding-up order will be made usually 30-75 days later by the Court.. The Official Receiver is then appointed to liquidate any assets of the company and undertake an investigation into the director’s conduct.
Options to Close A Company With No Debts (Solvent)
Closing down after IR35
If you are considering closing your company after IR35, due to the IR35 reforms, then bear in mind all the valid points above. Many private sector companies are now not taking on contractors via companies. This may mean that your company is no longer viable/needed or is insolvent as any debts cannot be paid off by the company itself. If the company is insolvent then a creditors voluntary liquidation is the correct way to the close the company.
Directors Health Warning!
The Insolvency Service has been given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act.
Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.
The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act are retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.
Making your limited company dormant
In a nutshell, this means putting your company on hold. It can be done if you think you will trade through your company again in the future.
With this procedure you still need to file some tax returns but they will be ‘nil returns’ i.e. lots of zeroes!
Whilst the company is on hold, you are able to work as a sole trader outside of it until you feel ready to return to your limited company.
So have a think, assess your situation and seek the best option. Get in touch with us today for help and guidance.
In all cases it is worth getting professional advice from a firm of licensed insolvency practitioners like us. Call 0800 9700539 to speak to an expert today.
Detailed Guide To Dissolution
This process is also known as a voluntary dissolution. This is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.
If the company serves no useful purpose, its dissolution removes the need for filing annual returns and accounts. But bear in mind that the company can only be dissolved (removed from the Companies House register), if the following conditions apply:
- The company has not traded for three months; this must be a genuine cessation of trade!
- The company has no assets or property or cash at bank.
- The creditors must be circulated requesting their permission for the company to be dissolved under this process.
- Creditors are given three months to consider the request to dissolve the company and can reject such request.
- The company cannot have changed its name in this period.
- The company may not have disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).
Please note that paying off debts does not necessarily constitute trading, but for detailed advice on this and all other aspects of dissolution, please call on 0800 9700 539 for further advice.
Dissolution cannot be used if:
Any formal insolvency procedure is in place or proceedings have been commenced. Procedures such as a CVL, CVA, Administration, receivership or compulsory liquidation under the Insolvencies Act 1986, or scheme of arrangement under the Companies Act 2006.
If any petition has been issued against a company (for administration or compulsory liquidation) then dissolution cannot be used.
Advantages of closing dissolution:
It is a quick and clean removal of a dormant company from the Companies House Register.
Dissolution avoids the costs of liquidation, fees and expenses.
It avoids formal investigation into the conduct of the directors as required in liquidation or receivership.
Disadvantages:
Creditors may reject the application; their permission is required to proceed with a dissolution.
Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution.
They may revive the company of the following applies:
Notice required to creditors was not given correctly or adequately or it comes to light that the company was trading during the three months period prior to making application to dissolve.
It comes to light that some fraud, misfeasance or other unjust action was committed by the company or the directors before or during the dissolution process.
Whilst a commonsense approach to collecting assets and distributing them to creditors in proper order usually suffices, there is no prescribed method. This could of course be open to abuse and if performed incorrectly can lead to a revival of the company as above. If you have any doubt as to the application of this methodology please do not hesitate to contact us by e-mail or on our freephone number 0800 970 0539.
Dissolution cannot terminate leases, HP agreements or contingent liabilities. Receivership, Administration, CVL, or CVA need to be used whenever such circumstances exist. This is clearly a very difficult technical area and the directors should take proper advice from a turnaround practitioner or insolvency practitioner who is well-versed in the rules in this regard.
From a creditors’ perspective dissolution avoids a formal investigation into the director’s conduct. Of course if any transactions such as a preference, transactions defrauding creditors or basic fraud have been committed dissolution does not afford an investigation into past conduct. If the creditors are of the opinion that such transactions may have occurred they can of course refuse permission and the company will either be liquidated voluntarily or compulsorily.