Closing a Limited Company
A limited company that is no longer needed can be closed down, a process also known as winding up or dissolution, which will bring the legal entity to an end and dissolve its legal status.
It is possible to close your ltd company without paying tax but only up to the limit of your annual tax-free allowance. The main methods of closing down a solvent limited company are Voluntary Strike Off and Members’ Voluntary Liquidation (MVL).
You usually need to have the agreement of your company’s directors and shareholders to close a limited company. The way you close the company depends on whether it can pay its bills or not. Generally, it takes at least 3 months from the winding-up notice being advertised in the Gazette to dissolve a limited company.
Liquidation and Dissolution Processes
If you decide to close your limited company, you will need to apply to Companies House to have it wound up and struck off the register.
The cheapest way to close a limited company is to submit a ‘Strike off a company from the register (DS01)’ form to Companies House. This voluntary strike-off is only available to companies with no debts and costs £8.
What happens if my company is insolvent? You must arrange the liquidation of your company. In certain circumstances, you may be able to avoid liquidation by applying for a Company Voluntary Arrangement.
Starting a new company after closing the old one is like starting afresh. An application is made at Companies House, and once registered, new bank accounts can be established. However, there are restrictions on the new company to consider.
Notifying Stakeholders and Handling Debts
The first step in closing a limited company is to notify stakeholders – shareholders, employees, creditors, and customers. The company must fulfill outstanding obligations like paying off debts, taxes, or liabilities.
Here are the costs to close a limited company:
- Professional fees for advice from accountants, solicitors or insolvency practitioners
- Companies House fees for processing closure applications
- Insolvency practitioner fees for processes like CVL or CVA
- Employee redundancy costs such as statutory pay, notice periods, and holiday pay
- Costs for settling debts and liabilities
If your company is insolvent, creditors’ interests legally come before those of directors or shareholders when closing. Your options include putting the company into administration or processing through a creditors voluntary liquidation (CVL).
Voluntary Dissolution and Starting Afresh
A voluntary dissolution can remove companies from the Companies House Register under certain conditions. Specifically, you cannot dissolve a company with significant debts.
Liquidation and strike-off/dissolution are two separate processes. Dissolving is suitable when no debt is present or when outstanding debt and liabilities can be settled in full within 12 months. If unable to pay off debts, liquidation is the most appropriate option.
To dissolve a limited company, first assess whether your business is solvent or insolvent, as this greatly impacts what options you can take. Solvent companies can apply to be struck off the Register of Companies or start an MVL. Each option has its own pros and cons.