Closing A Limited Company

Closing a limited company. Written by: John A Waller, Consultant. Reviewed July 7th, 2024.

Can I Close my Limited Company If I Owe Money

Yes, however, you require a licensed Insolvency Practitioner (IP) if you intend to close the company and require liquidation and removal from the company registrar at Companies House.

When considering closure, you usually need the consent of your directors and shareholders to proceed.

Reasons for closing a company

include: -.

  • you wish to retire;
  • trade as a sole trader;
  • sell to interested parties as an asset sale only;
  • Your business faces financial issues out of its control.

However, once you have decided to close, ensure it is correct.

So, firstly, determine if the business can pay its debts or not.

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How long Can I Keep A Company Dormant?

You can keep a company dormant for as long as you wish.

However, you must maintain dormant accounts.

How to close down a limited company

Directors have two areas to consider:

  • Is the business Solvent or Insolvent?
  • You cannot strike off your company at companies house if you traded and have not gained tax clearance from HMRC.

So, what do I need to commence closing my company?

Usually, you need at least a majority of 75% to approve the resolution. When the special resolution is passed, it should be published in the Gazette within 14 days of passing the resolution. An Insolvency Practitioner must be voted in as liquidator at a section 100 meeting of creditors to take control of the company and manage the liquidation process.

What are the various forms of liquidation?

Entrepreneurs relief.

Members’ Voluntary Liquidation: This occurs when the business is solvent. The shareholders place the company into members’ voluntary liquidation, and the assets are realised to pay the shareholders. This type of liquidation applies only to SOLVENT businesses.

Closing down a company with Debts.

Creditors’ Voluntary Liquidation occurs when a business is insolvent. It involves a process whereby shareholders decide to liquidate, but their assets are insufficient to cover their debts.

Compulsory Liquidation: The result of receiving a winding-up order sanctioned by a court. This type of liquidation is usually an involuntary decision.

How Do I Initiate A Voluntary Liquidation?

Many directors choose to liquidate a company for numerous purposes.

When considering retirement or a change in employment direction, if the business is solvent (can pay its bills as and when due), the option of a Members’ Voluntary Liquidation (MVL) may apply.

If your company is insolvent (unable to pay its debts), directors can use a Creditors’Voluntary Liquidation (CVL).

However, directors must use a Licensed Insolvency Practitioner for whichever type of liquidation is wanted.

Starting the Liquidation Process

You should talk to an IP if considering an MVL or CVL.

They are regulated professionals and will ensure everything is legal. 

The team at HBG Advisory provides directors with free advice in total confidence and with no obligation.

So, should you decide to appoint a licensed insolvency practitioner from the team at HBG Advisory to commence a voluntary liquidation, we request the following from you: –

  • Proof of ID;
  • Signing our standard letter of engagement; 
  • For the business to maintain insurance;
  • Pay our initial deposit request to the bank account advised;

Once the above completes, we request: –

  • the completion of the directors’ questionnaire;forward to us the books & records of the business;
  • Payroll records.

Where possible, directors may do all the above electronically.

We handle all the necessary documentation and guide you through the process.

Instead Of A CVL, Can I Wait For A Compulsory Liquidation Process?

You can, but we wouldn’t recommend it.

A Compulsory Liquidation process is not voluntary. It is when a Court appoints the Official Receiver to take control of a company, as it can no longer pay its debts.

While compulsory liquidation remains not advised, as severe consequences of compulsory liquidation include: –

  • Your future credit terms from lenders could be adversely affected.
  • Professionals may view directors differently following this course rather than voluntarily dealing with the issue through a CVL.
  • You risk others seeing you as someone who is complacent and reckless in terms of your fiduciary duties.

Directors prefer a CVL to liquidate an insolvent business, as costs start at £2,500.

How To Close A limited Company That Has Never Traded

  • Closing should be simple if your limited company is dormant or has never traded;
  • Liquidation can be suitable if it has outstanding liabilities and is a non-traded business;
  • You may wish to consider a dissolution:
  • An application for dissolution would be appropriate if it has never been traded. Usually, such a business will hold no liabilities or assets.

Directors should seek professional advice if you or the directors have any doubts regarding current or contingent liabilities.

The company can pay its bills (‘’solvent.’’)

You can either:

However, striking off the company is usually the cheapest way to close it.

Closing A Company When It Is Unable To Pay Its Bills (”insolvent”)

It is important to remember the following information about closing a company when it is unable to pay its bills (also known as being ”insolvent”:

When your business is insolvent, it is crucial to understand that the interests of the people your business owes money to (creditors) take legal priority over the interests of the directors or shareholders. This knowledge is critical to navigating closing a company in such circumstances.

It is not just a matter of choice-you must arrange the liquidation of your limited company if it is insolvent. Failure to pay creditors could lead to compulsory liquidation, which you undoubtedly want to avoid. However, you may be able to prevent this through Company Voluntary Arrangements CVA.

Numerous options exist when considering closing a company. It may be because: 

  • A creditor or the HMRC forcing closure? If not,
  • Is the business solvent?

It is essential to understand the formalities required going forward.

If you are retiring without succession plans or facing financial challenges due to the COVID-19 pandemic, it may be advisable to consider closing your business. This decision may be necessary to address potential financial difficulties and debt.

Closing a business is a relatively swift process compared to setting it up. Directors have options for closure based on whether the business is solvent or insolvent. If the business is solvent, you can close your private UK company online.

Directors can close a limited company with debt in England & Wales by obtaining a written agreement, such as board meeting minutes, from the board of directors and retained shareholders, even if a sole director.

Closing A Limited Company
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Closing A Limited Company and the types of liquidation available

There are three types of liquidation:

If your limited company is insolvent:

However, if your limited company is solvent:

Closing a Limited Company with a Bounce Back Loan?

Can directors close a business with an outstanding bounce back loan?

Yes!

However, this may only be actioned through a licensed insolvency practitioner IP.

How you decide how to close your business is simple.

First, arrange a free initial consultation with HBG Advisory to determine the company’s financial position and solvency.

Can the business pay its outstanding creditors or not? If not, the company is insolvent.

So, directors must discuss the formal insolvency procedures and the liquidation process once insolvent.

Do you want to consider liquidation or continue to trade while protected?

Closing Down A Limited Company – How to liquidate a limited company

Your Limited Company Can Satisfy Its Creditors – Solvent

  • Apply to strike the company of the Registrar of Companies;
  • File for members” voluntary liquidation;
  • Ensure registration for VAT;
  • Finalise accounts;
  • Submit Capital Gains tax return if applicable;
  • Inform HMRC of closure.

Closing a solvent company with MVL is easy. Make sure you choose fixed-price MVL liquidation option, like HBG Advisory.

Members Voluntary Liquidation (MVL)

An MVL relates to a solvent company and distributes the assets as realised cash to shareholders. To commence an MVL. It would be best if you appointed a licensed insolvency practitioner.

With the help of MVL, you can take money from your company, not as a dividend (Income). Retained profits remain distributed to shareholders as capital gains. This means that monies paid are subject to capital gains tax. This is the crucial difference, as it can mean a much lower final tax bill if you qualify for entrepreneurs’ relief. Adopting this method has a lower tax payment and allows shareholders to claim Business Asset Disposal Relief (Formerlyentrepreneurs” relief). You may be able to pay less Capital Gains Tax when you sell (or dispose of’’) all or part of your business.

Business Asset Disposal Relief means you’ll pay tax at 10% on all gains on qualifying assets.

An MVL remains a solvent liquidation. The directors assume responsibility for the IP fee. HBG Advisory provides Fixed-Price MVLs to give directors comfort over fees.

MVL usually takes 12 months to complete. However, subject to conditions, shareholders receive about 75% of the company’s funds within two to three weeks.

The Advantages and Disadvantages of an MVL

Advantages: Holding substantial retained profit in the company benefits from a more tax-efficient method than choosing a voluntary strike-off.

Disadvantages: MVLs take longer than a strike-off and require an insolvency practitioner.

Is your company unable to satisfy its creditors? – Company is Insolvent

How do you close down an Insolvent Limited Company?

Is your limited company insolvent with outstanding creditors in the UK? Then, seek professional advice and avoid preferential payments of any kind.

You can approach a licensed insolvency practitioner to liquidate your business with a Creditors Voluntary Liquidation CVL (Creditors Voting decides on liquidator). Creditors, subject to vote strength, may call a physical meeting. Then, any money owed will be frozen pending liquidation.

So, IMMEDIATE Liquidation Advice must remain the route to closure you require. Take care, as a creditor may force you into compulsory liquidation.

You may propose a company voluntary arrangement (CVA) subject to certain criteria, mainly the sustainability of cash flow and sales.

What happens to shareholders in liquidation depends on whether the company is solvent.

Closure of a Limited Company When No Directors Exist?

The company requires a new director.

Companies House will strike off a company without a director, making it challenging to manage company assets.

For a new director to be appointed (say, in the event of the death of the sole director), shareholders must agree to a new director, and a vote is necessary to name them as a new company officer.

However, even if the company sits dormant or a group of dormant companies still requires a director.

The newly appointed director may then close the company. Suppose it still owes money after ceasing trading. In that case, as stated above, it will need to pay all debts before the end of 12 months to enter into a member’s voluntary liquidation MVL as tax efficient. Suppose you wish to cease operations at your Ltd company and remain unable to pay the company debts. In that case, you, as a company director, must consult with licensed insolvency practitioners before disposing of company assets.

It is important to note that if your business is solvent, it remains liable for all outstanding taxes when dissolved. Ensure all returns are submitted.

Allowing the Company to Fall Dormant? (Dormant Company)

Dealing with a dormant company is often confused, with the business ceasing to exist. A dormant company has paid outstanding debts and remains registered at the companies house but does not trade.

The law does not require you to dissolve your business if it ceases trading. You can let it become”dorman” for tax as long as it’s not:

  • Trading.
  • Receiving income

Remember: Your limited company remains registered at Companies House. You must file your dormant company accounts, confirmation statement, and company tax return. Ensure you also account for corporation tax.

No time limit exists as to how long your company may remain dormant.

Compulsory Liquidation

A limited company faces compulsory liquidation when:

  • It doesn’t pay its bills:
  • The directors do not want to enter a CVL nor pay for the business to be liquidated or
  • In court, creditors, including HMRC, petition to wind the company up.

A winding-up petition requires £750 or more owed to the petitioning creditor.

Like a creditor voluntary liquidation, compulsory liquidation requires the liquidator to investigate the director’s conduct before the liquidator’s appointment. Suppose the liquidator proves any misfeasance or fraud. In that case, this may lead to the disqualification of directors for up to fifteen years and, if severe enough, face imprisonment and fines.

Can HMRC pursue a dissolved company?

YES!

If Companies House strikes a company off while still owing monies, the creditors may object and reinstate it.

Remember that HMRC may object to striking off a limited company.

Directors who assume companies can dissolve while insolvent should be aware that HMRC may restore the company once it is alerted. Once restored to the registrar at thecompany’ss house, they may collect any debt due to HMRC, along with penalties and prosecution.

BE WARNED!

Form Ds01

Per Section 1003 of the Companies Act 2006.

Striking off an application by a company requires the form Ds01 to be completed and forwarded to the Registrar of Companies. Once accepted and approved, subject to no queries, the company remains removed from the register at the companies house. The company no longer remains dormant.

Closure of a Limited Company  and Business Rescue

Suppose you wish to restructure your limited company but not cease to exist. Then, a rescue option remains best. Therefore, contact HBG Advisory to discuss closing your business safely and in privacy.

Book a Virtual Meeting in safety and privacy, securing your preferred date and time from either your place of work or home. This assures confidentiality and safety.

Ensure you understand when wishing to shut your company:

  • Ask if my company is solvent or insolvent.
  • Do I want to keep trading and use a Company Voluntary Arrangement or Company Administration?
  • Do I want to form a Phoenix company to continue trading if insolvent?
  • If I have a solvent company, have I filed a final set of accounts to ensure solvency and the ability to pay everyone within a year?
  • Ensure you tell the HMRC.
  • Ensure you maintain business insurance to the final day.

What are the directors ‘ duties when closing a solvent limited company?

The closure of limited companies is not always exact; you have to consider the following: –

  • Deregistering your business for VAT

If your company is registered for VAT, you must complete VAT form 7 to inform HMRC of your decision to deregister it.

  • Corporation Tax

Failure to advise HMRC of your business ceasing trading, as they will continue to raise reminders for payment of Corporation Tax.

  • Capital gains responsibilities

Your business will probably own some of the purchased equipment. When closing your company, you must either sell or transfer the company assets to yourself, ensuring the sale price is not undervalued and preferably valued by a qualified valuer. Once completed, ask your accountant to deal with any capital gain on your tax return.

I am maintaining a dormant company.

Sustaining a dormant company costs £100. Therefore, closing is more cost-effective if the company is not needed for three years.

Note also: Use of voluntary striking off does not remain an option.

Do I need to dissolve a company that has never traded?

A limited company that has never traded is considered a dormant entity. Therefore, provided the company has no income, it will have no tax liability. However, you should still file documents online at Companies House, including a dormant set of accounts and a confirmation statement within the time required. These documents must be filed annually as long as the limited company is registered.

Dissolution remains an option to cease a company.

This procedure does not require the appointment of a licensed Insolvency Practitioner.

Anyone can shut a limited company down through dissolution on behalf of the shareholders.

So:

Cease trading; accept no more sales while discontinuing trading. You may, though, receive monies appropriate to the companies winding up.

Then, agree with all creditors and issue payment in a full and final settlement. It is wise to receive written settlement confirmation in full for future reference.

Ensure the business bank account remains open until the company distributes monies to shareholders.

Secure any outstanding company loans, ensuring settlement in full. The same applies to leases on vehicles or any hire purchase on company assets. 

HR issues need finalising for the company’s former employees and directors. Perform the last payroll and then submit the final PAYE and NI return to HMRC.

VAT registration for the company requires cancelling with HMRC while submitting a final VAT return. 

Directors may now resign online, ensuring one remains to the end. 

Those directors still in office must produce final accounts for filing and submission to HMRC, inform them of your decision to cease trading and ensure all taxes are paid.

Finally, the company Corporation Tax remains the last liability to be discharged. However, nine months must pass once the company ceases trading, so the company shall remain open until payment.

The company’s assets must be realised and then distributed to the shareholder once company debts are paid.

After three months

Once the company has remained inactive for three months and discharged all its debt, the directors file a striking-off application at the company’s house using form ds01. The company will then be dissolved and no longer exist as a legal entity, leaving no unpaid debt.

Once executed and the outstanding problems are cleared, the Registrar of Companies House advertises the dissolution of the companies in the Gazette.

The advert invites creditors who may not be aware of the dissolution to submit valid claims. After nine months, the company is struck off, and the register officially no longer exists.

Are Directors and Shareholders Liable for Company Debt?

Directors and shareholders, however, are usually not held liable for limited companies’ liabilities that exceed the nominal value of their shares or the sum of personal guarantees they have made. Companies limited by shares remain separate legal entities accountable for their debts and actions.

In the same way, directors and shareholders are not held responsible for the company’s actions and debts.

What liability affects directors?

Suppose a limited company is liquidated or legal action. Then, shareholders and directors usually aren’t personally responsible for the company’s debts. Nevertheless, exceptions may apply.

If directors are also shareholders, they can be held personally liable for debts and liabilities in the company if they:

  • intentionally allow the company to act unlawfully;
  • pay dividends when the company is broke;
  • continue trading, having no intention to pay the debts of the company;
  • secure payments from customers for goods, knowing they may not be delivered;
  • fraudulently trade;
  • pay off the debt by fraudulent methods;
  • sell assets at an undervalue;
  • provide creditors preferential treatment over others;
  • maintain an overdrawn directors loan account;
  • are negligent in their actions.

Directors must always act in the company’s and its shareholders’ best interests. They are also expected to take all reasonable steps to minimise losses for the company’s creditors. If a director intentionally allows a limited company to act unlawfully or improperly, it is a direct breach of these duties.

What is the liability of company shareholders?

Shareholders are only liable for their shares’ value, typically £1. Therefore, shareholders are not personally responsible for the company’s debts. A struck off company is not allowed to trade or conduct business activities. Any remaining assets become the property of the government.

Sole Trader

A sole trader is a person who conducts business under their name. However, a sole trader has different options for discontinuing their business than a limited company (Ltd). None of these options apply to sole traders, as a limited company is a distinct legal entity, has tax implications, and is responsible for its debts, not the individual owner.

Sole traders operate differently, unlike a limited company, which establishes itself through a company formation and has shareholders, directors, and a separate company bank account for the owners. It also possesses business assets and a registered office for filing papers.

Limited Companies Registered in Scotland

This is for limited companies registered in Scotland that require help. Please read Scottish Insolvency Rescue and Recovery.

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