Options for Closure
You will need to account for the capital gain released to you on the closure of your company on your self-assessment tax return. If your company is insolvent, it may have insufficient funds, have more liabilities than it has in assets, or be facing pressure from creditors. There are two options available to you: liquidation or striking off.
A private limited company can be closed if the company submits the required forms. If you want to close a limited company which is no longer trading, you may have to pay Capital Gains Tax or Income Tax. For a solvent business, directors can opt for voluntary striking off by applying to Companies House. This process involves settling all business debts, notifying relevant parties, and submitting the DS01 form.
In most situations, as a company director, you will not become personally liable for debts in a limited company unless they have signed personal guarantees.
If the directors are applying for the company to be struck off, Companies House charges a fee of £10. A company can only be put into voluntary liquidation by its shareholders.
The Process of Closing a Limited Company
A limited company that is no longer needed can be closed down, this process for limited company’s is also known as winding up or dissolution. The decision to close a company may be due to a variety of reasons, including financial difficulties, lack of profitability, or retirement of the owner. The form must be signed by a majority of the company’s directors. When your company is dissolved, all the remaining assets will pass to the Crown (including any bank balances).
There are two main ways to close down a Limited Company:
- Strike off – a simple application to Companies House to strike the company off the register.
- Liquidation – a qualified insolvency practitioner is required for this.
To close a limited company that has never traded, you will need to:
- Seek agreement from all directors and shareholders of the limited company.
- Decide to dissolve.
- File your final tax returns.
- Alert your creditors.
Voluntary Liquidation and Dissolution
Creditors’ Voluntary Liquidation (CVL) is the official term for voluntarily liquidating an insolvent company. Voluntary dissolution can remove companies from the Companies House Register if they meet certain conditions, such as having no significant debts.
If a CVL is the chosen solution, the cost starts from £2,995 (all inclusive). This allows directors to fulfill their legal duties and potentially start afresh.
Liquidation and striking off/dissolution are two different processes. Liquidation is appropriate if your company is unable to pay off what it owes, while solvent companies can choose to get struck off the Register of Companies or start a member’s voluntary liquidation (MVL).
Assessing the Company’s Financial Status
The first step when looking to dissolve a limited company is to assess whether your business is solvent or insolvent, as this will determine your available options. Solvent companies are businesses that can pay their bills, while insolvent ones cannot.