Closing Down A Limited Company
When considering or being forced to close your business operation as a limited company, it is essential to understand the formalities required.
You may wish to close your business down, as it has come to the end of its life, and you have no succession plans and wish to retire.
However, your business may suffer financially, mainly due to the effects of the current coronavirus COVID-19 pandemic.
However, closing a company is not like when it opened, a quick process.
Company directors have primary options of closure. Your Limited company is either Solvent or Insolvent.
Many company directors ask ‘Can you close a Limited Company with debt’? The answer is yes.
Suppose your company is registered in England. To commence closing, your company requires you to have the agreement in writing (Board meeting minutes). Ensuring the board of directors in office and the retained shareholders. (directors and shareholders) approve. Even if you are a sole director, you still need to go through the process.
How you decide how to close your business is simple.
Firstly, arrange a free initial consultation meeting with HBG Advisory to determine the financial position and solvency of the business.
Can the business pay its outstanding creditors or not? If not, the business remains insolvent.
Once insolvent, directors must discuss the types of formal insolvency procedure available.
Do you wish to consider liquidation or continue to trade whilst protected?
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.
Your Company is unable to satisfy its creditors? – Company is Insolvent
If your limited company is insolvent in the UK, the company creditors owed money take preference legally before directors and shareholders.
Your option is then to approach a licensed insolvency practitioner to liquidate your business with a Creditors Voluntary Liquidation (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 imperative that if liquidation is the route to closure you require, take then IMMEDIATE Liquidation Advice. 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 if 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.
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 are over to enter into a voluntary liquidation MVL as tax efficient. If you wish to close your ltd company and are unable to pay the company debts, you as a director of the company need to consult with a UK licensed insolvency practitioners before disposing of company assets.
Important to note: Your business, however, remains liable for all outstanding taxes when closed if solvent, and ensures all returns are submitted.
Allowing the Company to Fall Dormant? (Dormant Company)
Allowing a company to fall dormant, 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:
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 long your company may remain dormant.
A limited company faces compulsory liquidation when:
- The directors do not want to enter a CVL and nor wish to pay for the company to be liquidated or
- A creditors petition to wind the company up, including HMRC in court.
To proceed with a winding up petition, the petitioning creditor must be owed £750 or more.
Like a creditor voluntary liquidation. Compulsory liquidation requires the liquidator to investigate the directors conduct prior to the liquidators’ appointment. If the liquidator proves any misfeasance or fraud, then this may lead to those directors being disqualified from acting as 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 out, the creditors may object and reinstate it.
Directors who assume companies are dissolved while insolvent should be aware that HMRC, once alerted, 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.
Per Section 1003 of the Companies Act 2006.
Striking off application by a company requires form Ds01 to complete and forward to the Registrar of Companies. Once accepted and approved. Subject to no queries, the company will be 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 company, but not cease to exist. Then a rescue option remains best. So to discuss the process of closing safely and in privacy.
How to Book A Virtual Meeting while safe and private, securing 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 CVA or Company Administration?
- If insolvent, do I want to form a Phoenix company to trade on with?
- If I have a solvent company, have I filed a final set of accounts to ensure solvency and 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‘.
Maintaining a company, dormant.
To sustain a dormant company, it costs (£100). Therefore, if you do not need the company in the forthcoming three years, closing it is more cost-effective.
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 confirmation of settlement in full for future reference.
Ensure the company’s bank account remains open until monies are distributed to shareholders of the company.
Secure any outstanding company loans, ensuring settlement in full. The same applies to leases on vehicles any Hire purchase on company assets.
HR issues require finalising for former employees of the company, along with the 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 are 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.
Company Corporation Tax remains the last liability to discharge. However, nine months are required after the company’s closure. Therefore, the company remains open until paid by the company.
The company’s assets require realising, then distributing to the company shareholder, once all company debts are discharged.
Once the company has remained inactive for three months or more and discharged all company debt, the directors of the company then file a striking off application at the company’s house using ds01. The company will then be dissolved and no longer exist as a legal entity, leaving no unpaid debt.
As soon as the above is implemented without any outstanding problems, the Registrar of Companies House 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 officially finished and no longer exists.
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 its own tax implications, and the company 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 own business assets and a registered office where papers are filed for serving.
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For help on a claim for redundancy as a director, view REDUNDANCY CLAIM