How To Close Down A Limited Company?

There are many reasons for wanting to close down your limited company. Some of the most common reasons are;

1. For retirement purposes.
2. To repay capital to shareholders
3. Becoming a sole trader
4. Due to the company’s financial difficulties.
5. 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.

1. 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.
2. 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.
3. 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.
4. 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)

1. This is a formal process used to close a solvent company.
2. Licensed insolvency practitioners are called in to aid the company in turning assets into cash.
3. The money received from this is then equally distributed to the company shareholders.
4. Directors may be able to claim Business Asset Relief if there is £25k or more cash.
5. Members receiving this money are taxed using capital gains tax rather than dividends.
6. To claim relief, the directors must declare that the company can pay for everything, including the cost of liquidation, in full.

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

Download our Complete Guide to Creditors Voluntary Liquidation

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.

Dissolution, also known as an informal striking off

Below are the simple steps you should take:

1. Cease trading. The company must have ceased trading for 3 months before starting the dissolution process.
2. Payments should be made to all creditors. Until all debts are paid. Any loans to or from any stakeholders of the company may need to be repaid.
3. A final payroll is run for all the staff. A P45 will be issued. A final return for payroll is made to HMRC documenting to HMRC. HMRC will also need to be informed that the company has ceased trading and has no more taxable income.
4. If the company hasn’t traded for 3 months the directors may now file a striking off application form DS01 and send this to Companies House. Once Companies House reports that the company has been dissolved, this means that the striking off application has been accepted, no creditor has objected and this means the end of the company. This second part usually takes 3 months.

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.