John A Waller
Reviewed 22nd March 2021.
Closing A Limited Company
When seeking to close a limited company? It depends on whether the company is ‘Solvent‘ or ‘Insolvent‘.
To consider closure, the directors of the company require the permission of the companies shareholders first.
For further reading view ‘Closing down a Limited Company‘
Closing an Insolvent Company
An insolvent company is a separate legal entity in law and status in the UK.
To establish if a Limited Company may be considered insolvent. Carry out the following tests
- Will the company pay its debts as soon as they fall due and payable? If no, then the company is insolvent.
- Do the liabilities of the company exceed those of its assets? If so, then insolvent.
- Is the company subject to legal action if it loses, it can’t pay? Then Insolvent.
Once you have established, the company is insolvent. Then the directors need approval from the shareholders of the company to wind the company up. A meeting of shareholders is required and once approved. The directors need to meet a Licensed Insolvency Practitioner. For further help on ‘what happens to shareholders in liquidation‘. and arrange a
Changes in April 2017 regarding how liquidation, convened, came into effect:
The process of closing a limited company since that date is as follows.
The directors have to meet and agree by a majority that the company is insolvent and must go into liquidation. They then choose a liquidator, which can be anyone, provided they are licensed to do so. No registration required for this meeting of directors and directors can attend by telephone.
Shareholders of the company
A meeting of shareholders requires convening to pass a special resolution on liquidation. It requires approval by 75 per cent of the shareholders, but only the voting shareholders count for 75 per cent.
This meeting will take place with written notice of at least 14 days but can be held immediately with more than 90 per cent consent. Therefore, advantageous for companies with only one or two shareholders can drastically reduce the time required.
The main area, affected by the new Insolvency Rules, changes.
Companies now only have two options:
1) Convene a virtual meeting of creditors with at least seven days’ notice, giving them details of how to attend (video conference or by telephone) virtually. Usually, the director still comes in on the day of the meeting to meet with the IP and be present to answer any creditor questions and then sign off all the paperwork.
Bizarrely, if a creditor turns up asking to be in the meeting room, you have to send them away and ask them to telephone in to hear what’s going on. Creditors do not like this, and it can increase tensions between the parties involved; nevertheless, it is part of the regulations.
2) A Notice of deemed consent to be sent to the companies creditors. Giving at least seven days’ notice. Deemed consent means there isn’t even a chance to attend remotely or by telephone. There is a specific date by which, if no one objects, the company deemed liquidated.
Lately, pre-April 5th,2017 creditors failed to attend creditors meetings, and so the ‘deemed consent’ option is an active process. However, 10 per cent of creditors by value or number want an actual physical session, they can demand one, and then a meeting must be held. Therefore, this means at least another seven-day delay to call a physical meeting.
Notice to creditors may now be given by email speeding up the process, though post remains an option if creditors hold no email addresses.
As a rule, a shareholder “meeting and notification of the company’s creditors remain held on the same day in succession. It allows a company to commence liquidation within eight working days subject to information being readily available and directors cooperation.
For further reading please view ‘what is creditors voluntary liquidation’?
Report and statement of affairs
A significant additional change under the new rules is a report that must be sent to all creditors before the virtual meeting or regarded as consent, which includes
- a company history,
- a statement listing assets and liabilities, and
- Other legal information.
The statement of affairs part still though it requires physically posting. Other correspondence though maybe by email, portal access or land mail.
Closing a Solvent Company
Strike off your limited company from the Register at Companies
You can dissolve your company by deleting it from the company register, but only if:
- Not traded in the last three months
- Not under threat of liquidation;
- hasn’t replaced its name in the past three months;
- It does not have any outstanding agreements with creditors of the company, like a Company Voluntary Arrangement.
If your company fails to satisfy these requirements, then you’ll have to liquidate your limited company voluntarily.
When you apply to ‘strike off’ your company, you have specific responsibilities to correctly close down your business.
Close down your company
Prior to seeking to strike off your limited company, you remain required to close a solvent company legally. Therefore, to do so requires directors to:
- Advise HMRC and the company creditors of your intentions while ensuring everyone remains paid in full;
- Make staff redundant correctly;
- Realise the assets of the business and then collect accounts due to the company.
Who you must advise of your intentions
Fill in an application to strike-off and send a copy within seven days to those who might be affected.
- Members of the company (usually the shareholders)
- Creditors of the company;
- Company employees
- Pension fund managers or trustees of employee pensions;
- Those directors who didn’t sign the application form.
Company staff require directors to:
- Follow the rules if any staff made redundant;
- Ensure final wages or salary remain paid.
PAYE and National Insurance (NI)
Advise HMRC, the company has ceased trading and stopped employing people.
You should ensure all business assets are shared between the shareholders before striking the company of the register, at ‘company house’.
Note: Assets not distributed will then become the property of the Crown. Should you wish to reclaim assets once the company is struck off the register at the companies’ house, they must restore the company to retrieve ownership.
The Companies Final accounts
You must submit the final annual accounts and a company tax return to HMRC.
You though remain not required file final accounts for the company at Companies House.
- Finalise final accounts and the company tax return.
- File your accounts and company tax return, advising these remain the final trading accounts for a soon to be dissolved limited company.
- Pay HMRC liabilities in full.
Members Voluntary Liquidation (MVL).
Members Voluntary Liquidation, a formal process utilised to secure a solvent company closure. To carry out the procedure, licensed insolvency practitioners help the company convert the company’s assets into cash. Once realised, funds received from this are then equally distributed to shareholders of the company. Company Directors of the company may then claim ‘Entrepreneurs’ Relief‘(ER) subject to their being £25k or more, which remains taxed on shareholders using capital gains tax in place of dividends. To claim ER successfully, the company directors remain required to declare the company can pay its debts in full and the associated cost of the liquidation.
Business Asset Disposal Relief was known as Entrepreneurs’ Relief before 6 April 2020.
How much tax do I pay if I shut my limited company?
Liquidating your limited company using members voluntary liquidated managed by a licensed insolvency practitioner, a tax-efficient way to conclude a solvent company with assets.
Therefore, using an MVL allows you to access your reserves by the liquidator, creating a distribution once all assets realised as capital rather than income.
Therefore, the money remains taxed as a capital gain at either 19% or 28%. They may then take advantage of ‘Entrepreneurs Relief’.
Making your limited company dormant
If your limited company fails to perform, then consider ceasing trading while either the market improves or you re-evaluate the operational side of your business. By placing your company on hold and ceasing any form of trade you may still retain the company for use in the future. You though still have it registered at the company house and still need to file documents.
Retaining a company allows the retention of a name for use later in time. Often sub-contractors set up companies purely for themselves and if they become employed then will cease trading with the limited company but still retain ownership subject to solvency.