Dissolving a company is a formal process designed to close a limited company without debts in the UK. The process involves striking the company off the register at Companies House and ensures that the company’s assets are distributed to its shareholders.
Once the process is complete, the company will no longer exist and its shareholders will be released from any further liability. Dissolving a company is often seen as a last resort, but it can be an effective way to close a business that is no longer viable. The process can be complex, so it is important to seek professional advice before taking any action.
Dissolution is the process of legally ending a company. Once a company has been dissolved, it becomes illegal for it to continue trading. This means that the company’s assets must be sold and its debts must be paid off. The process of dissolution can be initiated by shareholders, creditors, or the court. Dissolution is often used as a last resort to avoid bankruptcy. It can also be used to wind down a company that is no longer profitable. In some cases, shareholders may dissolve a company in order to sell its assets at a higher price.
When a company is dissolved, its shares are removed from the stock exchange and its name is removed from the register of companies. shareholders will lose their investment, but creditors will be paid off first. Employees will also lose their jobs. If you are considering dissolving your company, it is important to seek legal advice to ensure that you follow the correct procedure.
What does it mean to dissolve a company?
Dissolving a company is a formal way of closing it. Dissolution refers to the process of ‘striking off’ (removing) a company from the Companies House register. Once a directors have decided it should no longer trade, striking it off the register can be the most straightforward way of shutting a company down. The whole process usually takes around 6 months and involves writing to Companies House, HMRC and any other relevant organisations to let them know that the company is being dissolved.
Once the company is officially struck off, its assets will be transferred to the Crown and it will no longer exist. However, dissolving a company does not absolve its directors from their responsibilities – they can still be held liable for any debts or liabilities incurred while the company was trading. For this reason, it’s important to seek professional advice before taking this step.
Reasons for Dissolving a Company
Voluntarily dissolving your company is a decision that should not be made lightly. However, there are certain circumstances where it may be the best course of action. For example, if your company has no assets or debts, dissolution may be the simplest way to close up shop.
Alternatively, if you are approaching retirement or the company has never really gotten off the ground, dissolution may be the best option. If there is a dispute between directors, dissolution may be the best way to avoid further conflict.
While there are some drawbacks to dissolution (such as the lack of investigation into your conduct as director), it can be a quick and relatively easy way to close a company.
Steps to Take Before Dissolving Your Company
Applying to Remove your Company from the Companies House Register you should ensure that the following has taken place:
- Make sure all business assets have been distributed to company shareholders
- Employees are paid what is outstanding, including redundancy payments
- HMRC debts are cleared
- Company accounts and your final tax return are up to date and filed
- Deregistered for VAT and PAYE if applicable
- All debts are fully paid to all creditors
- Close company bank accounts
- Make sure all connected parties know about the impending closure.
Under the Insolvency Act 1986, HMRC is given special powers to collect debts owed by companies that have been dissolved. If a company owes money to HMRC and is dissolved without paying its debts, HMRC can still pursue the directors of the company for the outstanding amount.
This is because directors are personally liable for the debts of a company if it is unable to pay them. As a result, even if a company is dissolved owing money to HMRC, the organisation can still pursue the directors for payment. This means that it is important for directors to be aware of their obligations if a company is facing financial difficulty. Directors should always seek professional advice if they are unsure about their responsibilities in such a situation.
Further reading can be found here on: Can HMRC Chase a Dissolved Company
What is the Process of Dissolving a Company?
The process of how to dissolve a limited company is as follows:
Liquidate Company Assets
Once a company is dissolved, any assets remaining in its name will automatically be transferred to the Crown. As a result, it is important to sell any assets prior to commencing the dissolution process. This includes both physical assets, such as property or equipment, and digital assets, such as domain names. By selling these assets and transferring them out of company ownership, you can ensure that they are not lost in the dissolution process. Additionally, this will help to maximise the value of the company’s estate and the impact of dissolution on creditors.
Settle Any Debts
All debts in the company need to be cleared before applying to have the business dissolved, if there are outstanding debts, creditors can object to the process as Companies House. If the business has debts you cannot dissolve the limited company, you must liquidate the company via an insolvency practitioner.
File the Dissolution Paperwork to Companies House Form with Form DS01
The paper work required for dissolution is the form DS01, the form needs to be completed and signed by a majority of the directors. Once it has been filed to Companies House you need to distribute copies of the letter must be distributed to employees, shareholders, creditors, pension managers or trustees, and of course directors.
All employees need to be paid in full including any redundancy, plus paying any final wages and salaries.
Wait for the Acceptance Letter
If all the paper work was completed correctly, you’ll receive your acceptance letter stating that your request for striking off will be published in the London Gazette stating you wish to dissolve the company.
A Second Notice in the Gazette Means the Company is Officially Dissolved
Once you receive the second notice of dissolution from Companies house and it is re advertised in the London Gazette the company no longer has any legal substance and does not exist.
Is Dissolution a Good Option for a Company with Significant Assets?
If the company has significant assets, dissolving the company may not be the best way to close it down. There are more tax efficient methods, one you may wish to look at is called a members’ voluntary liquidation. This process must be carried out by a licensed insolvency practitioner.
Business asset disposal relief, formerly known as Entrepreneurs Relief allows Companies to benefit from paying less capital gains tax on qualifying assets.
Can You Dissolve a Company With Debts?
It is not uncommon for directors to ask us about the possibility of striking a company with debts off the register in the hope that HMRC will simply not notice. However, this is not a viable option, as HMRC monitor all applications carefully and will immediately object if you attempt this course of action.
In addition, company dissolutions can have serious implications for directors, as they may be held liable for the company’s debts. If you are struggling to pay your debts, you should contact HMRC to discuss your options. They may be able to offer you a payment plan or other arrangement that can help you get back on track.
Objection to Dissolution
HMRC officers working with Companies House routinely check applications for strike off to ensure due process has been followed. If it hasn’t, they’ll want to know why. Failure to complete any of the steps above could mean you receive an ‘Objection to Company Strike off Letter’. This could lead to your application being rejected and your company being placed back on the register.
In serious cases, HMRC may also take action against the directors of the company. Therefore, it’s essential that you make sure you follow the correct procedure when applying to have your company struck off the register.
It’s important to be aware that even if you dissolve your company, creditors can still come after you for payment. If you owe money to a creditor and try to strike the company off the register in order to avoid paying, the creditor has the right to submit an objection.
In fact, even if you manage to dissolve the company completely, a creditor could apply to have the business restored to the register. If this happens, you would then have no choice but to liquidate the company if you cannot pay the debts. Only after liquidating the company would you be able to legitimately close it down.
How Long Does it Take to Dissolve a Company?
It takes at least three months for a company to be officially dissolved from Companies House register.
Company dissolution is usually a simple and straightforward process, and can often be completed within three months. However, if there are outstanding tasks that need to be completed before the business can be closed, the process may take longer. For example, if an application to Companies House needs to be made, and the dissolution is then advertised in the Gazette, it will take at least three months from that point.
While this may seem like a lengthy process, it is still relatively quick compared to other legal processes, such as winding up a company. Therefore, if you are considering dissolving your company, it is important to be aware of the potential timeline so that you can plan accordingly.
If the company is dormant, however, the process is much quicker. With the agreement of the directors, a striking off application can be submitted to Companies House along with the standard £10 fee. The application will be advertised in the Gazette, and assuming there are no objections within a 3 month period, the company will be struck off.
This process is significantly faster and less costly than liquidation, making it an attractive option for companies that are no longer trading.
Company Has a Bounce Back Loan
You cannot dissolve a company with a bounce back loan, you will be committing a criminal offence. If you cannot afford to repay the loan you need to contact an Insolvency Practitioner
Dissolving a Company Online
You can dissolve a Company online by using Companies House form DS01, Companies House will only accept it as a hard copy meaning in paper form. That means it must be printed out and returned to a physical address. The form must be completed correctly and accurately in order for it to be accepted.
If the form is rejected for any reason, for example, if the registration number has been entered incorrectly, it will be returned to you along with instructions about how to resubmit the form online. An additional £8 fee will be charged for resubmission. Therefore, it is important that you take care when filling out the form and check all of the information that you have entered before submitting it.
How to Dissolve a Company That Never Traded
Dissolving a company that has never traded is a simple process. All you need to do is to complete form DS01 and send it to Companies House. As a courtesy, it is also advisable to send a letter to HMRC’s Corporation Tax office to explain that the company never traded and will shortly be struck off the Companies House register.
This is simply to avoid any confusion as HMRC assigns a Corporation Tax reference number to every company when it is created. This number should be included in the letter. Once Companies House receives form DS01, they will strike the company off the register and dissolve it.
After the company has been dissolved, you should receive a Certificate of Dissolution from Companies House within two weeks. Once you have received this, you should destroy any remaining paperwork related to the company, as it is no longer legally required. With just a few simple steps, you can successfully dissolve a dormant company.
Alternatives to dissolving your company
- If the company has debts and is insolvent, the directors have a duty to creditors to ensure that the company is closed down in an orderly manner. The main options for closing down an insolvent company are a creditors’ voluntary liquidation (CVL). A CVL is a process whereby the directors of the company work with a licensed insolvency practitioner (IP) to wind up the company voluntarily.
- If the company is solvent (meaning it has enough assets to cover its debts), then a members voluntary liquidation (MVL) is the most tax efficient way to close down the company. A key benefit of an MVL is that it allows shareholders to claim a tax break known as Business Asset Disposal Relief (formerly Entrepreneurs Relief). This relief can help reduce the amount of capital gains tax that needs to be paid on qualifying assets. As a result, shareholders may only need to pay 10% of tax on these assets, which can represent a significant saving.
How can we help
If you need help in regards to dissolving your company safely, we can help you find the most cost effective way to close down an solvent or insolvent company. Simply complete the online enquiry or call us direct on 01246 912052
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.