A Guide to Closing a Limited Company
Closing a limited company in the UK can be relatively straightforward, provided you choose the correct method.
We’ll guide you through the necessary steps to close your limited company in accordance with UK law and minimize risks.
- How to Close a Limited Company
- How Long Does it Take to Close a Company?
- How much does it cost to close a limited company?
- What permissions do I need to close my company?
- How to Close a Limited Company That has Never Traded
- Do I Need to Notify HMRC if I Want to Close a Limited Company?
- How to Make a Company Dormant instead of Closing it
- Do I need to tell HMRC my company has been closed if it never traded?
- Closing a Limited Company FAQs
How to Close a Limited Company
To close a company in the UK, you’ll need to choose one of three approaches: strike off, an MVL or a CVL (voluntary liquidation).
- For a solvent business, directors can opt for voluntary strike off by applying to Companies House. This process involves settling all business debts, notifying relevant parties, and submitting the DS01 form.
- If the solvent company has assets, a member’s voluntary liquidation (MVL) offers a tax-efficient means of selling these and formally closing.
- If your company is insolvent, directors should opt for a creditors’ voluntary liquidation (CVL). An insolvency practitioner oversees the process, which includes selling assets to pay creditors and concluding the company’s affairs.
Each route has specific legal requirements and implications, so seeking professional advice is essential.
I’ll go into each option in detail below.
Striking off a solvent company
Striking off a limited company from the Companies Register is a relatively straightforward and cost-effective way to close a company that is solvent and no longer trading. It is a popular choice for small business owners who are retiring or moving on to other ventures.
Before applying to strike off, ensure your company meets the following eligibility criteria:
- The company hasn’t traded in the last three months.
- It has no debts, including those to HMRC, suppliers, and employees.
- It faces no ongoing legal proceedings.
Once you’ve confirmed your company’s eligibility, submit an application to Companies House online or by post. There is a fee; you’ll need to provide essential details such as the directors’ and shareholders’ names.
After submitting and accepting your application, Companies House will publish a legal notice in the Gazette. The Gazette is the official public record of the United Kingdom, and it is where all legal notices are published. This notice informs the public and potential creditors that your company is being struck off.
After the Gazette publication, there is a two-month waiting period during which objections can be raised against the company’s striking off. If any objections are received, these must be resolved before the striking-off process can proceed.
Upon successful completion of all the above steps and in the absence of any objections, Companies House will formally strike off your company. You will then receive a notice of dissolution confirming that your company has been officially closed and no longer exists.
Members’ Voluntary Liquidation of a solvent company
An MVL is a formal process of winding up a solvent limited company, meaning that it has enough assets to pay off all of its debts. It is best suited for companies with at least £25k in assets.
One of the main advantages of closing a company with an MVL is the potential tax savings. When a company is wound up voluntarily, any distributions to shareholders are treated as capital gains rather than income. This means that they are taxed at a lower rate, especially for higher-rate taxpayers.
The criteria for an MVL are as follows:
- The company must be solvent, and able to pay all its debts within 12 months.
- Shareholders must pass a resolution for voluntary liquidation.
- An insolvency practitioner must be appointed as the liquidator.
- A Declaration of Solvency, including a statement of assets and liabilities, must be prepared and sworn by the directors.
After that, the MVL process begins with a resolution passed at a general meeting of shareholders at which directors must affirm the company’s solvency,
The next step is appointing a licensed insolvency practitioner (IP) to act as the liquidator. The IP is responsible for overseeing the entire liquidation process, including selling the company’s assets and distributing the proceeds to shareholders in a tax-efficient manner.
As part of the MVL procedure, the liquidator must send formal notifications to creditors, giving them the opportunity to submit any outstanding claims. This ensures that all financial obligations are addressed transparently and in accordance with the law.
The liquidator then proceeds to realize and sell the company’s assets, converting them into cash. The funds acquired are then distributed among the shareholders according to their entitlements.
Once all of the assets have been distributed and all financial matters have been resolved, the liquidator will apply for the company’s dissolution. This formalizes the closure, removing it from the Companies House register and marking the conclusion of the Members’ Voluntary Liquidation process.
Creditors’ Voluntary Liquidation of an insolvent company
Creditors’ voluntary liquidation (CVL) is a formal process for closing a company with debt. It is a good option for companies that are insolvent but want to avoid compulsory liquidation, which is the process of winding up a company by court order.
The journey towards a CVL begins with a formal resolution to wind up the company. This resolution must be passed at a general meeting of shareholders, with at least 75% of the shareholders voting in favour. This step sets the stage for the formal liquidation process and is mandatory for proceeding with a CVL.
Upon passing the resolution, the next step involves appointing a licensed insolvency practitioner (IP) to act as the liquidator. The liquidator’s role is critical; they are responsible for shutting down the company, valuing and selling its assets, and overseeing the payment to creditors.
Once the liquidator is appointed, it is mandatory to publish a notice about the liquidation in The Gazette. This step is crucial to inform creditors, suppliers, and other stakeholders about the company’s status and impending liquidation.
The liquidator will then proceed to sell off the company’s assets and use the proceeds to settle debts. Creditors are paid in a specific order, usually starting with secured creditors. It’s imperative to follow this sequence to adhere to legal requirements.
After settling all debts and fulfilling any remaining legal obligations, the liquidator will apply to have the company dissolved. This is the final step in the CVL process and marks the official end of your company.
Compulsory Liquidation by Creditors or HMRC
Compulsory liquidation occurs when a company is forced to close, typically initiated by creditors or HM Revenue & Customs (HMRC) due to unpaid debts. This process starts when a creditor files a winding-up petition in court. If the court agrees that the company cannot pay its debts, it will issue a winding-up order, leading to the company’s closure.
HMRC, as one of the most common initiators of compulsory liquidation, may take this step for unpaid taxes. Creditors, including suppliers or lenders, might also pursue this route if they believe the company is insolvent and unable to meet its financial obligations.
Once the winding-up order is issued, an official receiver is appointed to liquidate the company’s assets, pay off creditors, and distribute any remaining funds according to legal priorities. This process not only ends the company’s operations but also its legal existence.
Compulsory liquidation is a significant action with lasting impacts on the company’s directors, including potential investigations into their conduct. It’s essential for businesses facing financial difficulties to seek advice early to explore all available options before compulsory liquidation becomes unavoidable.
How Long Does it Take to Close a Company?
Closing a company in the UK varies in duration; a Members’ Voluntary Liquidation (MVL) for solvent companies typically concludes within 6 to 12 months.
Voluntary liquidation for insolvent companies and striking off a company from the Companies House register can take around 3 to 6 months.
Compulsory liquidation, initiated by creditors or HMRC, is usually more prolonged, often extending beyond 12 months due to its complexity.
How much does it cost to close a limited company?
The cost of closing a limited company in the UK varies widely based on the method chosen and the complexity of the process:
- Striking off a company directly through Companies House is the least expensive option: It costs £8 to apply online, or £10 for a paper application.
- Members’ Voluntary Liquidation (MVL) tends to be more costly, with fees typically starting from £1,500 to £3,000, but can increase significantly depending on the size and complexity of the company.
- Compulsory liquidation costs can vary greatly. While the petitioning creditor usually covers the court fees, the overall expenses related to the liquidation process could be higher, depending on the assets and liabilities involved.
- Creditors’ Voluntary Liquidation (CVL) also varies, with professional fees generally starting from £4,000 upwards, influenced by the company’s size, number of creditors, and asset disposition.
These figures are indicative and can fluctuate based on specific circumstances and the professionals involved.
What permissions do I need to close my company?
To close your company in the UK, the permissions required depend on the method of closure:
- Striking off: You must have the agreement of all company directors and inform any shareholders, creditors, and employees. The company should not have traded or sold off any stock in the last three months.
- Members’ Voluntary Liquidation (MVL): Requires a declaration of solvency from the directors, affirming the company can pay its debts within 12 months. Shareholders must also approve the liquidation, typically requiring a 75% majority vote in favour.
- Creditors’ Voluntary Liquidation (CVL): This method requires a vote by the shareholders to agree on liquidation, followed by a meeting with creditors to appoint a liquidator.
- Compulsory Liquidation: Initiated by creditors through a court order, so the company itself does not need to obtain permission, but must respond to legal actions taken by creditors.
How to Close a Limited Company That has Never Traded
Strike-off, also called dissolution, is the simplest and most cost-effective way to close a limited company that has never traded. This is a relatively simple process, but there are a few things you need to do first.
- Pass a resolution to strike off the company. This must be done at a general meeting of shareholders. All shareholders must agree to the resolution.
- Complete and submit Form DS01 to Companies House. This form must be signed by all of the company’s directors.
- Pay a filing fee to Companies House. The current fee is £10.
- Once Companies House has processed your application, your company will be struck off the register and will cease to exist.
If you are unsure whether your company is eligible for voluntary strike-off or you need help completing the form, you can seek professional advice from an accountant or solicitor.
Do I Need to Notify HMRC if I Want to Close a Limited Company?
You will need to notify HMRC if you decide to dissolve (Strike Off) a limited company.
If you are closing a limited company via MVL or CVL, it is typically the responsibility of the appointed Insolvency Practitioner (IP) to notify HM Revenue and Customs (HMRC) as part of the liquidation process.
When dissolving your company through a voluntary striking off, it is the directors who are responsible for informing HMRC of the intent to close the company. This includes settling any outstanding tax affairs before applying to Companies House, pus submitting final accounts and tax returns.
How to Make a Company Dormant instead of Closing it
To make your company dormant, ensure that all clients and employees are aware that you are ceasing trading and any agreements or contracts are to be terminated.
Then you can follow these steps:
- Notify HMRC that your company is dormant. You can do this online or by phone.
- File your dormant company accounts with Companies House. You can do this online or by post.
- Submit a confirmation statement to Companies House each year. You can do this online or by post.
If your company has any significant transactions during the year, it will not be considered dormant and you will need to file normal company accounts and tax returns.
Do I need to tell HMRC my company has been closed if it never traded?
Yes, if your company has been closed and it never traded, you still need to inform HM Revenue and Customs (HMRC) about the closure. Even if the company had no business activities or tax liabilities, HMRC should be notified to ensure their records are updated, and no further tax obligations or filings are expected from the company.
Closing a Limited Company FAQs
Can I close my company if it has outstanding debts?
Yes, via a process called creditors voluntary liquidation, which is where the directors voluntarily opt to liquidate. The use of an insolvency practitioner is mandatory to ensure fair play for creditors.
What steps are involved in closing a company voluntarily?
When closing a company voluntarily, directors must call a general meeting to pass a resolution for winding up, appoint a liquidator to settle affairs, and notify Companies House within 15 days of the resolution.
What should be considered before initiating a company closure?
Before initiating a company closure, it’s important to evaluate outstanding debts, notify all stakeholders, ensure all company taxes and reports are up to date, and assess the implications for employees.
What is the difference between Company Closure and Company Dissolution?
Company closure often refers to the process of ceasing operations and winding up a company, whereas company dissolution is the final step where the company is formally removed from the Companies House register.
How can one reinstate a company after closure?
To reinstate a company after closure, an application must be made to the court for a restoration order. This requires submitting evidence explaining why the company was dissolved and how you meet the criteria for restoration, as well as settling any outstanding debts or filing requirements.
What are the legal requirements for notifying creditors about a company closure?
When closing a company, directors must inform all creditors about the intended closure. This is usually done by sending a written notice and, if the company is being voluntarily wound up, advertising the resolution to wind up in The Gazette.
What are the consequences of not following proper procedures during company closure?
Failure to follow proper procedures during company closure can result in legal and financial penalties for directors, including personal liability for company debts, fines, or disqualification from serving as a director in the future.