Closing Down A Limited Company
They were closing down a limited company. John A Waller wrote them. Director. Reviewed June 8th,2022.
When considering closing a limited company, you need to understand why.
It may be that you:-
- wish to retire;
- trade as a sole trader;
- Your company faces financial issues out of its control.
However, once you have decided to close your limited company, ensure it is correct.
To close a limited company down requires the agreement of the company directors and shareholders first.
So, firstly, determine if the company can pay its debts or not?.
What are the various forms of liquidation?
Members’ Voluntary Liquidation: This occurs when the company is solvent. The shareholders place the company into liquidation, and the assets within the company are realised to pay the company’s shareholders.
Creditors’ Voluntary Liquidation: This occurs when the company is insolvent. It involves a process whereby company shareholders decide to liquidate, but assets are insufficient to cover their debts.
Compulsory Liquidation: The result of receiving a ‘winding-up order’ sanctioned by a court.
How to close a 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 but has never been traded;
- You may wish to consider a company dissolution:
- An application for dissolution of your limited company would be appropriate if a company had never traded. Usually, such a company 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 may pay its bills (‘solvent’)
You can either:
Striking off the company is usually the cheapest way to close it.
Closing down a limited company when it is unable to pay its bills (‘insolvent’)
If your company is insolvent, the interests of the people your company owes money to (your creditors) come legally before the directors or shareholders.
You need to arrange the liquidation of your limited company.
You may avoid liquidation by using a Company Voluntary Arrangement.
When considering closing a limited company, numerous options exist.
- Is a creditor or the HMRC forcing closure? If not,
- is the company solvent?
It is essential to understand the formalities required going forward.
You may want to close your business, as it has come to the end of your life, and you have no succession plans and want to retire.
However, your business may suffer financially, with company debt dragging down, mainly due to the current COVID-19 coronavirus pandemic.
Closing a company down is unlike setting it up, a quick process.
Company directors have primary options of closure. Your limited company is either Solvent or Insolvent?
If solvent, you may close your private UK company online.
Many company directors ask, ‘Can you close a Limited Company with debt’? The answer is yes.
Suppose you have a limited company registered in England? Your company requires you to have the agreement in writing (Board meeting minutes) to commence closing. Ensuring the board of directors in office and the retained shareholders. (directors and shareholders) approve. Even if you remain a sole director, you still need to go through the process.
Closing down 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:
How you decide how to close your business is simple.
First, arrange a free initial consultation with HBG Advisory to determine the financial position and solvency of the company.
Can the company pay its outstanding creditors or not? If not, the company is insolvent.
So, once insolvent, directors must discuss the types of formal insolvency procedures available and the liquidation process.
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 a members’ voluntary liquidation;
- Ensure the company is vat registered;
- Finalise accounts;
- Submit Capital Gains tax return if applicable;
- Inform HMRC of closure.
The closure of a solvent company with MVL is easy. Make sure you choose a fixed price MVL, as found at HBG Advisory.
Members’ voluntary liquidation (MVL)
An MVL closes a solvent company and distributes the assets as realised cash to shareholders. To commence an MVL. You need to appoint 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 key difference, as it can mean a much lower final tax bill if you qualify for entrepreneurs’ relief. The adoption of this method has a lower tax payment and allows shareholders to claim Business Asset Disposal Relief (Formerly entrepreneurs’ relief).
An MVL is a solvent liquidation. The directors assume responsibility for the IPs fee. At HBG Advisory, we provide Fixed Price MVL to give directors comfort over fees.
MVL usually takes 12 months to complete. However, shareholders receive about 75 percent of the funds held by the company within two to three weeks, subject to conditions.
For comfort, move forward. HBG Advisory provides fixed price MVL.
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
If your limited company is insolvent with outstanding creditors in the UK? Then seek professional advice and avoid preferential payments of any kind.
Your option is to 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 company owed is frozen pending the liquidation.
So, it is imperative that IMMEDIATE Liquidation Advice is the route to closure you require. Take care, though, as a creditor may force you into compulsory liquidation.
Subject to criteria, mainly sustainability of cash flow and sales, you may propose a Company Voluntary Arrangement.
What happens to shareholders in liquidation depends on whether the company is solvent or mot.
Closing Down A Limited Company When No Directors Exist?
The company requires a new director.
Companies House will strike off a company that doesn’t have a director. Therefore, it is 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 officer of the company.
However, even if the company sits dormant or a group of dormant companies, they still require a company director.
The newly appointed director may then close the company. If it still owes money after ceasing trading, then as stated above, it will need to pay all debts before 12 months end to enter into a member’s voluntary liquidation MVL as tax efficient. Suppose you wish to close 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.
Important to note: Your business, however, remains liable for all outstanding taxes when closed if the solvent. Ensure all returns remain submitted.
Allowing the Company to Fall Dormant? (Dormant Company)
Dealing with a company dormant is often confused with that the business ceases to exist. A dormant company has paid outstanding debts and remains registered at companies house, but does not trade.
Law does not require you to close your business if it ceases trading. You can let it become ‘dormant’ for tax as long as it’s not:
- Receiving income
Remember: Your ltd company remains though registered at the company’s house. Your dormant company accounts, confirmation statement and company tax return still require filing. Ensure you also account for corporation tax.
No time limit exists as to how prolonged your company may remain dormant.
A limited company faces compulsory liquidation when:
- It can’t pay its bills:
- The directors do not want to enter a CVL nor pay for the company to be liquidated or
- A creditors petition to wind the company up, including HMRC in court.
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 liquidators’ 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?
If companies house strikes a company off while still owing monies, the creditors may object and reinstate it.
Remember though, HMRC may object to striking off a limited company.
Directors who assume companies can dissolve while insolvent should be aware that, once alerted, HMRC may restore the company. Then once restored to the registrar at the company’s house, they may collect any debt due to HMRC, along with penalties and prosecution.
Closing Down A Limited Company – 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 company’s house. The company no longer remains dormant.
Closing Down A Company – 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 the process of closing your business safely and in privacy.
Book a Virtual Meeting while safe and private, securing your preferred date and time from either your place of work or home. Assures confidentiality and safety.
Ensure you understand when wishing to close your company:
- Ask if my company is solvent or insolvent?
- Do I wish to keep trading and therefore use a Company Voluntary Arrangement or Company Administration?
- If insolvent, do I want to form a Phoenix company to continue trading?
- 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.
For further reading, please check out ‘Closing a limited company’.
I am maintaining a dormant company.
To sustain a dormant company costs £100. Therefore, closing is more cost-effective if you do not need the company in the forthcoming three years.
Note also: Use of voluntary striking off does not remain an option.
Do I need to close a company that has never traded?
A limited company that has never traded is considered a dormant entity. Therefore, provided the company has not received any 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 close a company.
This procedure does not require the appointment of a licensed Insolvency Practitioner.
Anyone can close a limited company through dissolution on behalf of the shareholders.
Cease trading accepting 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 company’s 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 require finalising for the company’s former employees and directors. Perform the last payroll, then the final PAYE and NI return requires submitting to the HMRC.
VAT registration for the company requires cancelling with HMRC while submitting a final VAT return.
Company Directors may now resign online, ensuring one remains to the end.
Directors remain required to produce final accounts for the company. Once ready, copies must be forwarded to HMRC, informing them of the company’s decision to cease trading and all taxes paid.
Finally, company Corporation Tax remains the last liability to discharge. However, nine months must pass once the company is closed, so the company shall remain open until the company pays the tax.
The company’s assets require realising, then distributing to the company shareholder once payment of company debts.
After three months
Once the company has remained inactive for three months or more and discharged all company debt, the company’s directors then 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 clear of outstanding problems, the Registrar of Companies House then advertises the dissolution of the companies in the London Gazette.
The advert invites any creditors who may not be aware of the dissolution to submit valid claims. Then once nine months have passed, the company is struck off, and the register officially no longer exists.
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, therefore accountable for their debts and actions.
In the same way, directors and shareholders are not held responsible for the actions and debts of the company.
What liability affects company directors?
Suppose a limited company is liquidated or legal action? Then shareholders and directors usually aren’t personally responsible for the debts of the company. 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 of the company at an undervalue;
- provide creditors preferential treatment over others;
- maintain an overdrawn directors loan account;
- are negligent in their actions.
Company directors must, however, always act in the best interests of the company and its shareholders. They’re also supposed to take every reasonable step to minimise company creditors’ losses. Suppose a director intentionally allows a limited company to act unlawfully or improperly. In that case, this is a direct breach of these duties.
Shareholders remain only liable for the value of their shares. Normally, this value is £1, so shareholders are not on the hook for the company’s debts.
A sole trader is a person trading in their name. A sole trader, however, has different closure options than an ltd company. None of the above applies, as an ltd company remains a separate legal entity, has tax implications, and owes money, not you. An ltd company has
Sole traders also differ in how they operate. A ltd company has used a company formation to set it up; it has shareholders, directors, a separate company bank account to the owners. It has its business assets and a registered office where papers are filed for serving.
Limited Companies Registered in Scotland
For limited companies registered in Scotland requiring help. Please read Scottish Insolvency Rescue and Recovery.
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