How to shut down a limited company

Closing a limited company - what are the options?

While the UK has better business survival rates than many other countries, more than 50% of British businesses are shut down within their first five years of trading. Some start-ups fail because they have struggled to gain traction or achieve profitability, while others are closed because a sole director has passed away or simply because the company no longer meets the needs of the business owners.

Before shutting your company have you considered the possibility of selling it? There are some circumstances where, for strategic and tax reasons you may find that another business might offer you some money even if your business is losing money. Find out more about how we can help as business valuers. Whatever the reason, shutting down a limited company can sometimes be a complicated process. Let's take a look at what's involved.

Shutting down a solvent company

If your business is solvent (i.e. it can meet its financial obligations) there are two ways you can shut down the company:

1. Getting the company struck off the Companies Register

Provided your company meets the eligibility criteria and does not have an overly large or complex balance sheet you can close it down by getting it ‘struck off’ the Companies Register at Companies House. To be eligible the company must not have traded or changed its name during the previous three months, should not be at risk of liquidation and should have no outstanding agreements with creditors.

Before applying to strike off your limited company you must announce your intentions to interested parties, including employees, directors, shareholders and creditors, as well informing HM Revenue and Customs (HMRC). Failure to inform the correct interested parties could result in a fine and possible prosecution.

File final accounts before closing your company

There are many very good reasons to dissolve a company the right way but first and foremost it's a legal; requirement when closing a company which is solvent to file final accounts. Other good reasons include reputation - in future potential customers, suppliers and financial institutions will check on your previous record  and trustworthiness  and if you were a director of a company that no longer exists. It looks much better if you have shut down your company the right way rather than simply abandon it or wait for a creditor to take action..

The tax position on closing a company is complex but there can be significant tax advantages to dissolving a company and preparing good final accounts. Terminal loss relief may be available. On the basis the company is solvent, debts should be paid and assets realised leading potentially to financial benefit for shareholders. The company must pay employees their final wages or salary, pay the final balance of PAYE and National Insurance to HMRC  close its business bank accounts, and digital assets such as domain names, social media accounts and hosting accounts should be transferred or closed.

A majority of the company's directors must then sign form DS01 and send it to Companies House. It currently costs £10 to strike off a limited company using form DS01.

Companies House will write to the company directors to confirm the application has been filed correctly, before publishing a striking off notice in The Gazette. Provided no one objects within three months a second notice will be published confirming the company has been struck off the register.

Any money not removed from the company by the time it is struck off will go to the Crown.

We are highly experienced in advising on the issues when dissolving a limited company. Typically, we can prepare final accounts at a very affordable cost. Please do get in touch to get a quote or to discuss your situation and options.

2. Entering into a Members’ Voluntary Liquidation

A limited company which has been actively trading, or one with significant assets and liabilities on its balance sheet, may have to forego the simpler and cheaper striking off process and instead appoint a liquidator to wind up the business. This Members' Voluntary Liquidation process (MVL) requires shareholders to adopt a voluntary winding up resolution, which empowers a liquidator to liquidate the companies assets, pay the company's creditors and distribute the surplus funds to shareholders.

To begin the MVL process the company completes a Declaration of Solvency, which must be signed by a majority of the company's directors. At least five weeks later the company must call a general meeting of shareholders to pass a voluntary resolution of winding up, which must be advertised in The Gazette within 14 days. The company then appoints an authorised insolvency practitioner to handle the liquidation process.

Shutting down an insolvent company

If a company is insolvent (ie unable to meet its financial obligations) striking off and Members' Voluntary Liquidation are no longer options. Instead, the company must go through the Creditors' Voluntary Liquidation (CVL) process.

The CVL process begins with a general meeting of shareholders, where 75% of shareholders must agree to pass a winding up resolution. The company must send the resolution to Companies House within 15 days, advertise the resolution in The Gazette and appoint an authorised insolvency practitioner to handle the liquidation process.

In contrast to a Members' Voluntary Liquidation, the CVL process gives a number of rights to the company's creditors, including the right to question directors about why the company failed and the right to request the appointment of a different liquidator. Creditors can exercise these rights at a creditors' meeting, which must be held within 14 days of the winding up resolution. Creditors must be made aware of this meeting at least seven days before it takes place, and it must also be advertised in The Gazette.

A statement of affairs must be presented at the creditors' meeting, outlining the company's current position and detailing its assets and liabilities. After the meeting the liquidator will send a copy of the statement of affairs to Companies House before beginning to liquidate the company's assets.

If you need help or advice on closing your company, are worried about insolvency or are a creditor owed money by a business which seems to be in difficulties, we can help. Please do get in touch with us.