Dissolution v Liquidation – What is the difference?

Dissolution without liquidationDissolution and Liquidation are both formally ways of closing a limited company which is no longer viable and must cease trading. 

Businesses generally dissolve voluntarily when they feel they have accomplished their purpose or have no further reason to continue operating.

The decision to dissolve is typically made by the board of directors or business owners. Dissolution can also be forced upon a business by creditors through a process called liquidation.

When a business is liquidated, its assets are sold off and the proceeds are used to pay creditors. Any remaining funds are distributed to shareholders.Liquidation is generally considered to be a last resort, as it can be costly and time-consuming. It also has a negative impact on the business’s reputation.

For these reasons, businesses usually only consider liquidation if they are unable to repay their debts or if they are facing criminal charges.

Liquidation

Most people have heard of liquidation, but they may not be exactly sure what it is. Liquidation is the process of selling off a company’s assets in order to pay its debts. This can be a very complicated process, and it often requires the help of a professional liquidator.

In some cases, liquidation may be the best option for a company that is struggling to stay afloat. However, it is important to note that liquidation can also have serious consequences for shareholders and employees.

If you are considering liquidation for your company, it is important to speak with a professional first to learn more about the potential risks and rewards.

The three forms of liquidation are:

  • Creditors’ Voluntary Liquidation (CVL) – for insolvent companies. Directors voluntarily place the company into liquidation in order to protect the interests of their creditors
  • Compulsory liquidation – for insolvent companies. A creditor forces the company’s liquidation by way of a court order
  • Members’ Voluntary Liquidation (MVL) – an option for solvent companies wishing to close down in an orderly manner

Dissolution

Dissolving a company is useful when the company no longer has a use and has fulfilled its purpose. This could be because the director chooses to move abroad, no longer has a purpose for the business or wishes to retire.

As well as your company being solvent, there are other conditions that must be met before a company is eligible for dissolution. Your company must:

  • Not have traded or sold off any stock in the last 3 months
  • Not have changed names in the last 3 months
  • Not be threatened with liquidation or any other type of insolvency proceedings, or have agreements with creditors such as a Company Voluntary Arrangement (CVA)

Best option Dissolution or Liquidation

What is the best option between liquidation and dissolution, it is initially based on your company’s financial status, but the options don’t end there.

If your company is solvent you have two choices between closing it down yourself via dissolution and entering into an MVL, which ensures all statutory requirements are met.

Our experts can help you make the right choice, presenting the options in detail and providing professional guidance to ensure effective company closure..

F.A.Q’s

What's the difference between liquidation and dissolving a company

Liquidate means a formal closing down by a liquidator when there are still assets and liabilities to be dealt with. Dissolving a company is where the business is struck off the register at Companies House because it is now inactive. The two are very different processes. Liquidation means you need a Licensed Insolvency Practitioner like us to act as the liquidator. You do not need one to dissolve a company.

Difference between liquidation and dissolution?

The difference between liquidation and dissolution is that liquidation involves the selling of a company's assets in order to pay creditors and dissolution is a voluntary legal closure of a business

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