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Closing down your company can sometimes be a difficult decision, depending on the circumstances. After working hard to build your business up, you may be reluctant to let go, however positive the reasons for doing so. There are different methods for closing a limited company, depending on whether or not the company is solvent.

 

 

Closing a solvent limited company

The definition of a solvent company is one which can still afford to pay its bills. The owners of a solvent company can close the business either by:

Striking off a company to close it

The most common, and potentially cheapest, way to close a solvent company is to have it struck off the Companies House register. You can only have a company struck off under certain conditions. This means that the company:

How do I have my company struck off?

This costs just £10 and involves a relatively simple process. You’ll need to complete a form DS01 to apply for company strike off, signed by all of the directors in the company. Once you submit the form to Companies House, they will let you know when the process is complete.

You’ll also need to make sure that you deal with the company’s assets before applying for strike off. The closure process must all include telling everyone who is part of the business, such as employees, as well as closing any bank accounts.

 

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Liquidating a solvent company

Member’s Voluntary Liquidation can be a more expensive way of closing a limited company, though it’s sometimes the better choice for some.

You can choose to liquidate your company if it’s solvent, and you’re retiring, decide you no longer want to run the business, or if you’re stepping down from a family business with nobody to replace you.

Applying to liquidate a solvent company depends on your location:

The company must call a shareholders’ meeting within five weeks of submitting the form or declaration. You must also advertise it in The Gazette within two weeks. The next step is to notify Companies House of the resolution within 15 days.

Closing an insolvent limited company

The process for closing down a limited company which is insolvent is a bit different. An insolvent company is one which can’t afford to pay its bills. There are different ways that an insolvent company might close:

Creditors’ voluntary liquidation

If the company can’t pay its debts and wants to close, it can apply for creditor’s voluntary liquidation. This is where at least 75% of the voting rights agree, and appoint an insolvency practitioner to liquidate the company.

The practitioner, also known as a liquidator, will arrange to sell off the company assets, and share these funds between the creditors. Once liquidation is complete, they can dissolve the company.

You’ll need to let Companies House know that you’re appointing a liquidator, within 15 days of the resolution. You should also advertise this in The Gazette within 14 days.

Compulsory liquidation

Compulsory liquidation (also known as ‘winding-up’) is a court procedure. This is a compulsory process which redistributes the company assets to its creditors. It can start by one of your creditors filing a petition for the liquidation of your company.

A judge will then make a decision as to whether a court hearing is necessary or not. Once the assets are liquidated the company is then dissolved, as with the creditors’ voluntary liquidation.

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Avoiding compulsory liquidation with a Company Voluntary Arrangement

An insolvent company which can’t pay its debts might be able to apply for a Company Voluntary Arrangement (CVA). This is a formal agreement to repay the company’s creditors over a set period, whilst continuing to trade and keep control of the business.

You will need an insolvency practitioner to work with your creditors, and create a CVA for you. They will work out realistic repayments, and invite your creditors to vote on it. To be eligible for a CVA, the arrangement must be approved by creditors who are owed at least 75% of debt.

How do I close a limited company without a director?

If you want to close a company that does not have a director then you need to appoint a new director. This can happen, for instance if the sole director of a company dies.

The company’s shareholders must vote to appoint the new director. If there are no shareholders either, it’s up to the executor of the estate to appoint a director.

Companies House will strike the company off if it does not appoint a new director. Whilst this might sound like an easy option, it does make dealing with the company’s remaining assets much more difficult.

What if I don’t want to close it?

If you don’t want to close the company you can let the company become dormant. When your company stops trading you can register it as dormant for tax reasons, as long as the business activity stops, and it’s not trading or receiving income.

If you do allow your company to become dormant you do still need to send annual accounts and the confirmation statement to Companies House.

Learn more about how our online accountants can help your limited company. Talk to one of the team by calling 020 3355 4047, or ask for an instant quote online. 

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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