A limited company that is no longer needed can be closed down, this process for limited company’s is also known as winding up or dissolution, this process will bring the legal entity to a close and dissolving its legal status.
This can be a complex process that requires proper planning and the guidance of a professional, such as a lawyer or accountant. The decision to close a company may be due to a variety of reasons, including financial difficulties, lack of profitability, or retirement of the owner.
Regardless of the reason, it is important to understand the steps involved in closing down a limited company to ensure that all legal and financial obligations are met.
While it may seem like a lot of work, following these steps will help to ensure that the process is done correctly and that your company is officially closed down.
Happily, this also means that there are no longer any administrative duties or costs associated with running the business, such as time spent checking paperwork and paying accountants.
How to close a limited company with a strike off
If you can pay your debts, then usually the cheapest and most expedient way to liquidate a firm is through a Company Strike Off. You ‘Strike Off’ a firm by applying for a DS01 form, known as a Voluntary Strike-Off.
A Compulsory Strike-Off happens when a third party appeals for the termination of your company. The failure to return accounts or annual statements triggers the involvement of this third party, which is typically Companies House.
If your organisation finds itself in either predicament, it is possible to salvage the situation or navigate a Strike-Off process explained below. Nonetheless, we highly recommend collaborating with experts to do this.
Voluntary liquidation is one of the most common methods of closing a business in the UK. It involves a decision to cease trading, followed by the appointment of a licensed insolvency practitioner (IP) to manage the liquidation process. The IP will be responsible for selling the company’s assets and distributing the proceeds to its creditors. The company will then be struck off the Companies House register.
Formal liquidation is different from a Strike-Off
Your business may be forced into compulsory liquidation if you fail to make payments to your creditors. But, you can escape liquidation by qualifying for a Company Voluntary Arrangement.
Letting your company go dormant
As long as your business isn’t doing any trading, you can let it become “dormant.” This means that while you are no longer able to conduct any business or receive any income, you still need to send Companies House your annual accounts and confirmation statement. A limited business may be inactive for as long as desired.
How to close a limited company and start a Voluntary Company Strike-Off
Striking off a company isn’t as simple as flipping a switch – and the time it takes will depend on the size and complexity of your organisation.
Before you begin the process of a Strike-Off or dissolution, there will be formal measures you need to do outside of the Strike-Off process – plus any loose ends to tie up. Our list consists of:
- Giving staff their final wage or making them redundant. Be sure to receive guidance on the rules here, particularly with redundancy
- Finish all pending tasks and collect any money owing
- Sell any firm assets, dispersing proceeds to shareholders
- Stop using all utilities
- Transfer website domains
- Compile final company accounts and tax returns and deliver them to HMRC and Companies House, advising them that you desireto close the firm in a letter signed by directors.
- Pay any taxes owed to HMRC if you have the money available. VAT, Corporate Tax, PAYE, and NI, for instance.
- Ask HMRC to close your payroll
- Deregister for VAT
- Close business accounts
There may be other duties you have to complete while shutting a corporation, depending on the type of business you manage. They are best discussed with specialists such as us.
Selling your assets and distributing them to the shareholders is extremely important at this stage before you submit a DS01 form. Cash and assets from your company that are still in existence after it has been formally struck off the register pass into the ownership of the Crown, and you lose all legal claim to them.
What is a DS01 form?
The next formal step in the Strike-Off process is submitting a DS01 form to Companies House. This is simple to complete and requires the following information:
- Company registration number
- Company name
- Signatures of the company’s officers authorising the Strike-Off
Companies House will review the information and respond with confirmation via post. Finally, depending on where your business is headquartered, they will print a notice in the London, Edinburgh, or Belfast Gazette (the UK’s official journals of record).
There are then three months when interested parties can object to the Strike-Off. This is why it’s so important to have accurate accounts and settle debts.
Using a DS01 form
You must adhere to specific requirements in order to use a DS01 form when dissolving a limited corporation. These consist of refraining from performing any of the following actions for the three months prior to submitting the DS01 form:
- Updating your company name
- Participating in activities other than those engaged in dissolving the corporation or legal obligations. Importantly, this implies that you can still pay for expert counsel.
Qualifying for Voluntary Strike-Off
To qualify for a Voluntary Strike-Off, you must meet specific standards that hinge on whether you owe money. These include:
- Without having any outstanding liabilities
- There cannot be any petition to wind up the company or any other insolvency proceedings.
- There cannot be any outstanding arrangements with creditors, such as a Company Voluntary Arrangement.
The most important of the aforementioned criteria is that your business must not have any existing liabilities. If it does and you are unable to pay them, you are insolvent and may end up going out of business.
Who do I need to tell about a Company Strike-Off?
You are legally required to tell interested parties that you have submitted a DS01 form within seven days of being delivered to Companies House. Notified parties include:
- Your employees
- Shareholders (also known as members) (also known as members)
- Any directors who did not sign the DS01 form
- Managers or trustees of a pension fund established up for employees
What happens if I do not notify interested parties
If you don’t adhere to these instructions or any of the procedures stated in the Strike-Off, you could face legal action or a fine. Additionally, it will postpone the Strike-Off, and potential parties who were previously unaware of the Strike-Off may now object.
What lingering issues exist?
You might still need to go over our checklist again to tie up any loose ends after doing the preceding steps. They may consist of:
- Domain name transfers for websites (or cancelling them)
- revocation of licences
- shutting down bank accounts
- completing the utility process
- stopping any recurring subscriptions you may have
The company is formally dissolved and ceases to exist once the notification is published in the Gazette by Companies House and three months have passed without any objections.
A second notice is subsequently issued in the Gazette, certifying it has been resolved. Make sure there isn’t any money or property around at this moment because if there is, it becomes the lawful property of the Crown.
What records do I need to keep after my company has been dissolved
The following records must be maintained by law:
- The minimum retention period for business records is seven years.
- Records pertaining to employees, such as your employer’s liability schedule and policy, must be kept for 40 years.
How soon can I start another company after a Strike-Off?
Straight away, there is nothing that prevents you from starting a new business at any stage during the process. You are free to form a new company with the exact same name after the company has been dissolved, if you so want.
Can I alter my decision? Yes, to answer briefly. If the directors change their views, they must submit a “withdrawal of striking off application by a corporation” to the registrar.
How to close a limited company that has never traded
Closing your limited business should be simple if it is dormant or has never traded.
If it has outstanding creditors but has never traded, liquidation may be necessary (i.e., an initial loan). A request for a corporation dissolution might also be taken into account.
In general, when a firm has never traded, a dissolution application for your limited company would be suitable. This is due to the likelihood that it has no assets and no present liabilities or potential liabilities.
If you or the directors have any questions regarding present or potential liabilities, you should consult a specialist.
How do you close a company that is solvent?
There are a few options if you want to close a company that is solvent, and the best option will depend the following questions:
- Is the company still trading?
- Are there employees owed redundancy pay?
- Can all liabilities be cleared from the assets?
If there are net assets above £25,000 the usual route would be a members’ voluntary liquidation (MVL). You will need a licensed Insolvency Practitioner who will usually give you a fixed quote to close the company and distribute the assets to the shareholders. The advantage of an MVL is that it treats the pay out as capital to shareholders, which means there’s usually less tax to pay than if the pay-out were to be by way of dividends.
If the net assets are below £25,000 then this can usually be closed informally by asking for HM Revenue and Customs (HMRC) for clearance to distribute the assets as capital. Once the company is dormant you can apply to strike it off using form DS01. Another method may be to pay out all funds as dividends to leave a nil balance of assets. Again, at the end of this process form DS01 should be used.
How to close a limited company with debts
Let’s say you worry that the inability to pay off debts may cause your limited company to fail. In that situation, business liquidation or administrative dissolution could be a means to relaunch your company, pay off any outstanding debts, clean up a bad reputation, and improve strained relationships with creditors.
There are a number of limitations and stringent guidelines to follow if you are thinking about going this path.
They have been set up to stop directors from founding a new business to get out from under their debt and the repercussions.
A “phoenix company” is a new company that is formed after the liquidation of an older one and has the same assets and, frequently, the same directors.
An insolvent firm has two options for liquidation: a Compulsory Liquidation (CL) and a Creditors’ Voluntary Liquidation (CVL).
What is a Creditors Voluntary Liquidation (CVL)?
A formal process called a Creditors Voluntary Liquidation is one that the directors of a firm that has been deemed insolvent voluntarily implement.
If a corporation lacks the resources to pay all of its debts, a CVL can be the only option. It is one of the most typical methods that directors and shareholders handle insolvency on their own initiative.
Directors often initiate a CVL by agreeing to schedule meetings of creditors and shareholders to discuss putting the firm into liquidation.
Once the directors of the company have decided on this course of action, the IP will be brought in to handle the CVL.
The IP’s three major goals after being chosen by members and creditors are as follows:
- to realise the company’s assets.
- to reach a consensus on the company’s creditors’ claims.
- to look into the business activities and behaviour of the directors.
When a company is judged insolvent and doesn’t seem feasible even after reorganisation, a CVL is acceptable.
You should get in touch with the Future Strategy team right away if you believe your business might need a creditors voluntary liquidation.
What is a Compulsory Liquidation?
The procedure by which a creditor (someone who is owed money) forces an insolvent firm into liquidation in order to have it pay back that debt on the grounds for compulsory liquidation.
Compulsory liquidation, also referred to as winding up, is a process under the Insolvency Act that is typically overseen by a creditor who is suing the company for money.
If a business is unable to make timely payments to its creditors, it is usually insolvent. But, the disgruntled creditor must first submit an application to dissolve the business.
It is important to keep in mind that there may still be time to execute Creditors’ Voluntary Liquidation after the Compulsory Liquidation procedure has begun. Nevertheless, rather than the company’s creditors, the directors are the ones that start this.
What are the restrictions on starting a new company?
When starting a new firm after closing an existing one, an application is submitted to Companies House. There are obviously limitations when shutting a business that is heavily in debt and beginning a brand-new one.
When asking yourself “can I close my limited company and create a new one,” there are a few things to consider.
1. Reusing your old company’s name
When beginning a new business, you cannot use the same name as your existing one or one that is confusingly close.
It is illegal to use the same name or even anything similar if compulsory liquidation was used to dissolve your previous business, according to Section 216 of the Insolvency Act of 1986.
As a result, it is unlawful for anyone who served as a corporate director or a shadow director at any point within the preceding 12 months to participate for a period of up to five years later in a company with the same or a similar name.
Nonetheless, there are three instances in which it is acceptable to reuse a corporate name.
The first exception – where an Insolvency Practitioner (IP) acting as the liquidator, administrator, administrative receiver, or supervisor of a voluntary arrangement arranges for the new business to acquire all of or the majority of the assets of the insolvent company.
Notice must be given in one of two ways per rule 4.228 for the name to be used again in this situation:
- After 28 days of assuming the name of the firm and acquiring the assets of the prior company from the liquidator, a submission must be made to the London Gazette, the official public record. The fact that you are the director of a new company with the same or a similar name must be made explicit in this announcement.
- You must notify each creditor of the failed company that you are the director of a new company with the same or a similar name.
The second exception – under rule 4.229 – entails the new firm asking the Court for permission (also known as “leave”) to continue using the insolvent company’s name. You must take into account the following two circumstances before you do this.
Application for court leave must be made no later than seven days after closing the previous business.
The Court will only issue “Leave” for a maximum of six weeks following this date.
The third exception – rule 4.230 includes the following restrictions.
The business had operated under that name for at least a year before it filed for insolvency.
The business cannot have gone dormant in the previous 12 months.
2. Paying a security deposit to HMRC
HMRC may request a security deposit, such as a fixed security payment or a bond, if it determines for whatever reason that there is a possibility that your new company won’t pay its taxes on time.
HMRC will use the security deposit to cover the remaining sum if you don’t pay your taxes on time. Please be aware that this security deposit cannot be applied to any property or expensive things.
3. Selling goods and assets
Selling an old company’s assets for less than their market value constitutes fraud. Yet, when a company is struggling, an asset sale can be done quickly and for a lower price.
It is essential that the business sale is legal since creditors may subsequently use the opportunity to challenge the sale of assets at a loss in court.
4. Transfer of employees
Employees who switch jobs as a result of a CVL or Compulsory Liquidation are not covered by the Transfer of Undertakings – Protection of Employment (TUPE) regulation.
As a result, adjustments to working conditions, contractual clauses, and other perks are acceptable.
5. Debt guarantees
Since a limited company is regarded as a distinct legal entity, its debts will not be held against you personally.
Yet, if you have signed a personal guarantee and the firm is unable to pay its debts, you will be held personally accountable as a director. In addition, the liquidator may pursue you if your director’s loan account is overdrawn.
6. Limited Credit Accounts
if the creditors had a bad relationship with your previous company and it had a bad credit history. They are unlikely to grant your new company a credit account without imposing additional security, like an upfront payment or stricter terms.
That concludes this post on how to close a company. We hope that provided the solutions you were seeking for.
Closing a UK Limited Company
Closing a limited company can be a complex process that requires careful consideration and planning. The first step in closing a limited company is to notify all stakeholders, including shareholders, employees, creditors, and customers. The company must also fulfill all of its outstanding obligations, including paying off any outstanding debts, taxes, or liabilities. Once all obligations have been fulfilled, the company can proceed with the legal process of winding up the business.
This typically involves filing the necessary paperwork with the Companies House and distributing any remaining assets among the shareholders. It is important to seek professional advice when closing a limited company to ensure that all legal requirements are met and the process is carried out correctly. Knowing how to close a limited company properly can help to protect the business owners and stakeholders from any potential legal or financial risks.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.