Begbies Traynor Group

How to close a limited company

Date Published: 20/05/2024

How do I close a limited company?

When closing a limited company which is no longer wanted or needed, you may have a number of different options depending on the financial position of the company at the time of closure. If your company is solvent, you could opt for liquidation which would allow you to extract the funds in the business is a tax-efficient manner. Alternatively, strike off may provide a more cost-effective solution if the company has minimal assets to distribute. 

Closing an insolvent company, however, will almost certainly require liquidation through a process known as a Creditors' Voluntary Liquidation (CVL). This will allow the company's affairs to be brought to an orderly end and ensure all outstanding creditors are treated fairly and in accordance with the Insolvency Act 1986.

How to close a solvent company

There are two ways in which you could use to close a company with no debts. The first option is to apply to have the company struck off the Register of Companies held at Companies House. This is sometimes known as dissolution, and can be a cheap and quick way of officially closing down a company which has either never traded, or has minimal assets or cash to distribute to shareholders.

Alternatively, a solvent company can be closed by entering into a Members’ Voluntary Liquidation. This is a formal liquidation closure option which has a number of advantages for those solvent companies with significant assets. If your company has in excess of £25,000 to distribute to shareholders, an MVL is likely to be the most appropriate option. Money and other assets extracted through an MVL are treated as Capital Gains rather than income and are taxed accordingly. Furthermore, Business Asset Disposal Relief can be used to reduce the effective rate of tax payable even more. 

How to close an insolvent company

If a company is insolvent, closure will need to be done via a formal liquidation process known as a Creditors' Voluntary Liquidation (CVL). With a CVL, an insolvency practitioner is appointed to liquidate all assets belonging to the company, and ensure these proceeds are used to repay creditors as far as possible in a fair and legally compliant manner. 

Understanding the closure options for a limited company

Let's take a look at these closure options in a little more detail:

Close a company via Creditors' Voluntary Liquidation

A Creditors’ Voluntary Liquidation is the most common type of liquidation in the UK. Aimed at insolvent companies, a CVL places the interests of suppliers and other creditors at the forefront of the procedure. The aim is to realise maximal returns for creditors before bringing the company to an orderly end. Any debt which remains outstanding at this point will be written off unless it has been secured by a director's personal guarantee.

Close a company via strike off

Strike off is only suitable for company's with no outstanding creditors. There is a specific eligibility criteria which must be met before a limited company can be struck off; this includes the cessation of trading for three months prior to strike off, no active threats of liquidation or formal creditor arrangements in place, such as a Company Voluntary Arrangement, and the company must not have changed its name during the previous three months.

There are certain procedures that need to be undertaken before the company is struck off:

  • Informing all interested parties of your decision by sending them a copy of the application to strike off the company. Interested parties include HMRC, employees, creditors, shareholders and pension fund managers
  • Closely following the rules and regulations surrounding redundancy payments, outstanding salaries and holiday pay
  • Business assets must be apportioned between shareholders
  • Informing HMRC that trading has ceased and the company is to be struck off
  • Ensuring your PAYE and National Insurance payments are up to date, and then requesting that HMRC close your payroll scheme
  • Preparing and filing your statutory accounts and company tax return with HMRC, letting them know that they are the final accounts before closure
  • Payment of any outstanding tax liabilities, including corporation tax and VAT
  • Closure of all company bank accounts.

Once all of the above has been completed, it is time to apply to Companies House to strike off the company. This is carried out using form DS01, which should be submitted along with the application fee. If your application is accepted, a notice will be placed in your local Gazette, followed by another notice placed three months later to announce that the company has been dissolved.

If your company has outstanding creditors, you should prepare for an objection to be filed against your proposed strike off application. You will then need to consider an alternative closure option such as liquidation.

Close a company via Members’ Voluntary Liquidation (MVL)

Solvent liquidation is often used when a sole director retires, or if there is nobody else willing to run the business. Alternatively, it may simply be the best route if the company serves no further purpose and shareholders are keen to extract the profits.

The first step in this procedure is to establish that the company is indeed solvent. A Declaration of Solvency will need to be signed to this effect. Once a winding up resolution has been passed, a liquidator will be appointed to administer the process. Once appointed, the liquidator will send notice of the MVL to the Registrar of Companies, creditors, and the Gazette, prior to selling off any assets of business. A final general meeting is called to present a formal account of the liquidation, which is then sent to the Registrar of Companies.

Temporarily close the company by registering as dormant

If you have decided you no longer wish to trade with your limited company but you are unsure what your long-term plans are, you may decide to make the company dormant as an alternative to closing it down for good.

Making a company dormant can be a good option if you may want to trade again in the future and want to protect your company name until this point. Annual Returns are still required while the company is registered as dormant, and you will need to file dormant accounts which include a balance sheet plus any relevant notes.

Making a company dormant is only possible if your company is solvent and does not owe creditors any money.

Begbies Traynor are licensed Insolvency Practitioners with more than 70 local offices. We are the UK’s number one corporate recovery firm, and are able to offer an initial consultation free of charge.

About The Author

Meet the Team

Jonathan was a founding director of Cooper Williamson which was acquired by Begbies Traynor in October 2013. 

Jonathan was involved in the inception and continued with the development of the "Real Business Rescue" website, which provides advice and assistance for the directors of limited companies which are experiencing various degrees of financial distress throughout the UK. 

Jonathan is a member of the Insolvency Practitioners Association MIPA and is a Member of The Association of Business Recovery Professionals MABRP.

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