Interested in dissolving your company but not sure where to start?
This article will tell you everything you need to know.
What is Company Dissolution?
Dissolving a company, also known as ‘striking-off‘ has the effect of removing the business from the registrar of companies (Companies House), so annual returns and accounts no longer need to be filed.
Unlike other methods of voluntarily closing a business, there will be no liquidation costs to incur and very little publicity . There will also be no investigation into your conduct as company director.
Why Would a Company be Dissolved?
Directors might consider this if:
- the company is dormant (i.e. no longer trading)
- they no longer have any viable use for the business and wish to legally close it
- they have debts and are seeking an alternative to liquidation.
As we shall see, dissolution is only the correct procedure for the first of these three options.
How Do I Dissolve My Limited Company?
Assuming the business is solvent, you can use the following processes:
Members’ Voluntary Liquidation is the correct method for liquidating a solvent limited company, where the business has assets which need to be extracted in a tax-efficient manner.
Voluntary Strike Off: If it hasn’t traded, changed its name, sold stock in the last 3 months, and has no debts, striking off is the appropriate way to close it down and you should do so by the following method:
Process of Closing Down a Company
(1) Liquidate Assets and Debts before Dissolution
Once the company is dissolved, any assets remaining automatically pass to the Crown, so be sure to sell any assets, including digital ones (such as domain names) prior to commencing the dissolution process. Make sure to:
- Sell Any Assets and transfer them out of company ownership
- Settle Any Debts with creditors
(2) Filing the Dissolution Paperwork to Companies House Form with Form DS01
You can download the form here , which must be signed by a majority of the directors. After being sent, copies of the letter must be distributed to employees, shareholders, creditors, pension managers or trustees, and of course directors.
(3) Wait for the Striking Off Acceptance Letter
Assuming everything has gone to plan, you’ll receive your acceptance letter stating that your request for striking off will be published in the London Gazette.
(4) A Second Notice in the Gazette Means the Company is Officially Dissolved
At this point the company no longer has any legal substance and does not exist.
Dissolving a Company by Striking it Off the Companies House Register
Part 31 of the Companies Act 2006 allows a director, secretary or adviser apply to be struck off the Companies House register. This can be done if:
- Directors wish to retire and there is no one to take over the running of the business;
- The company is a subsidiary whose name is no longer needed;
- The company is dormant and no longer trading;
- The company was originally set up to exploit an idea that turned out not to be feasible.
- The process can be instigated quickly – Once a company is dormant, then the process of strike-off is a quick and easy way to close it.
- The process is cheap – There is a small cost for submitting the strike-off application form at Companies House. Even if professional assistance is required to complete the process, the costs are still likely to be considerably less than liquidation.
- There’s no investigation into the director’s conduct – That means there’s no risk of directors being made personally liable for business debts or being disqualified from acting as directors in the future. This will only be the case if the company is restored by a creditor and a winding up petition is issued.
- No requirement to file annual returns and accounts – If the company is simply left dormant, accounts and returns will still need to be filed.
- The creditors may object to the application – If the business owes any money to creditors, then they must be informed of the director’s intention to have the company struck off. If a creditor does object, then the directors will have to find another way to close the company.
- Outstanding debts cannot be written off – The procedure does not allow any debts to be struck off. If is is dissolved with outstanding creditors, they can apply for the company to be restored for up to 20 years. They can then take enforcement action against the company for the repayment of the debt.
- Dissolution does not terminate leases, hire purchase agreements or contingent liabilities. Instead, receivership, administration, creditors’ voluntary liquidation (CVL) or a company voluntary arrangement (CVA) will need to be used.
- There is no prescribed process for the distribution of assets to creditors – That means the process could be open to abuse and mistakes could be made. If errors are made, the company can be restored to the Companies House register and creditors can take enforcement action.
How Long Does it Take?
It takes at least three months for a company to be officially dissolved.
However, if the process is complex and some tasks need to be completed to close the business, it will take longer. Once the application to Companies House has been made and advertised in the Gazette, it will take at least three months from that point.
Dissolving a Dormant Company
If the company is dormant, the process is much simpler. With the agreement of directors, submit a striking off application along with the standard £10 fee. It will advertised in the Gazette and then, assuming there are no objections within a 3 month period, be struck off.
Dissolution is Not an Alternative to Liquidation
For a dissolution to take place, there are some conditions that must be met. These are crucial to understand if you’re seeking dissolution as an alternative to liquidation.
- The company must have no assets, property or cash in the bank;
- The company must not have traded for three months or have changed its name during that period;
- The creditors must be informed of the decision and asked for their permission;
- The company must not have disposed of any assets (that includes buildings, land, equipment, plant, debtors and other assets).
Where the company is dissolved anyway, you should remember HMRC can and does chase companies who have struck themselves off with debt. Read our full article on: Can HMRC Chase a Dissolved Company?
The following pieces of legislation apply:
- the Companies Act 2006 in part 31 and sections 1000, 1001, 1003
- the Companies Act 1985 in sections 652 and 652a
- the Insolvency Act in sections 201, 205 and paragraph 84 of schedule B1
- the Companies (Northern Ireland) Order 1986
Before Closing Your Company you Need to:
- Make sure all business assets have been distributed to company shareholders
- Make sure employees are paid what they’re due, and redundancy due process has been followed
- Cleared any HMRC debts
- Ensure company accounts and your final tax return are up to date
- Make sure you’re registered for VAT and PAYE if applicable
- Ensure all debts are fully paid to any creditors
- Close Company bank accounts
- Make sure all interested parties know about the impending closure.
If the company is insolvent, an appropriate procedure is likely to be a creditors’ voluntary liquidation when closing down, otherwise you may risk being forced into compulsory liquidation by your creditors. In this case, closing a company down by a creditors’ voluntary liquidation can be advantageous because the directors are less likely to face an investigation and be accused of acting improperly.
If your company is starting to accumulate debt, you may think dissolving the company could be one way of avoiding repayment. However, dissolution is only a viable option once the debts have been repaid. The course of action you will need to take depends on the company’s ability to repay them:
If the company can pay its debts…
…then it is possible to dissolve the company as long as certain steps are followed. Firstly, director’s loans and every creditor would need to be repaid. From that point, the company closure process listed in the ‘Process’ section of this guide should be followed. That is, the company must cease trading, assets should be realised, and the company’s accounts must be filed. Once the company has been dormant for three months, it can then apply to be struck-off the Companies House register.
If the company has liabilities
… then there are two options it can explore a creditors’ voluntary liquidation (CVL) or an administrative dissolution. If the company has assets that can be sold for the benefit of the company’s creditors, a CVL will usually be the best option. In this case, a liquidator will be appointed to take control of the company and keep it running while the assets are sold. Once the debts are paid, it can then be closed down.
If the company doesn’t have any assets that can be sold or there aren’t any funds to pay for liquidation, an administrative dissolution could be a better route. In this instance, an insolvency specialist would help the director to clear any outstanding debt before the company applies to be struck-off the Companies House register. This is typically the cheaper of the two options.
Are there Risks?
Clearly, most companies would rather not pay the fees of an insolvency practitioner if they can dissolve the business themselves. However, depending on the circumstances the company finds itself in, the dangers of dissolution could outweigh the additional cost of professional assistance. For instance, even if the company is struck off and dissolved, creditors can apply for the company to be restored to the register if they are not paid the money they are owed.
For this reason, it is essential all the potential implications of dissolving a company are considered.
(1) Bona Vacantia and Unlawful Dividends
In some instances, the directors want to dissolve a solvent company to cease trading, pay creditors and make a distribution to shareholders. In this case, dissolution is certainly an option; however, the directors need to be aware that from the date of dissolution all assets belong to the crown as ‘Bona Vacantia’, including the potential rights of action against shareholders for unlawful dividends. This means that if a distribution is made to shareholders, it must be done in accordance with the legislation or it could give rise to a claim for unlawful dividends.
(2) Close Company Accounts and sell all Assets
From the date of dissolution, the company’s bank account will be frozen and any credit balance in the account will pass to the Crown. Company directors must be sure to close down accounts and sell any assets before applying to dissolve the company.
(3) Notify and Repay all Creditors
There’s also the danger that a creditor may not receive notification of the dissolution and subsequently might not be paid. If you are dissolving a solvent company, you must inform all creditors and members before applying as they may object to the company being struck off. It’s also essential you close down the company’s bank account or deal with the transfer of any domain names before you apply.
If an aggrieved creditor is not informed of the dissolution and has a debt outstanding, they can apply to restore the company to the Register of Companies within 6 years of dissolution. Once restored to the register, the company can be subject to formal insolvency proceedings and the directors and shareholders will be held accountable for their actions.
Dissolving a Company Online
The form you need to complete and submit to have your company struck-off the Companies House register (form DS01) is available online, but Companies House will only accept it in paper form. That means it must be printed out and returned to a physical address.
However, if for any reason the completed form if is rejected, for example, if the registration number has been entered incorrectly, the form will be returned to you along with instructions about how to resubmit the form online. An additional £8 fee will be charged for resubmission.
How to Dissolve a Company That Never Traded
Dissolving a dormant company i.e. a company that never traded, is a simple process. All you need to do is to complete form DS01 and send it to Companies House.
As a courtesy, it is also advisable to send a letter to HMRC’s Corporation Tax office to explain that the company never traded and will shortly be struck off the Companies House register. This is simply to avoid any confusion as HMRC assigns a Corporation Tax reference number to every company when it is created. This number should be included in the letter.
Can I Reinstate or Undissolve a Dissolved Company?
This is possible with the assistance of a court order known as a restoration order. A company can be restored by:
- A Liquidator
- Anyone with a legal claim against the company
- Someone with a legal interest in land which the company also had an interest in
- A Manager or trustee of the Employee Pension fund of the former company.
- Others listed on: listed in Section 1006(1) or 1007(2) and where the company was struck off the register under section 1003.
How can we help?
Looking for the safest way to dissolve your limited company? At Company Debt., we can help you find the safest and most cost effective way to close a solvent or insolvent company. Please call 08000 746 757, email: firstname.lastname@example.org or use our live support feature for a no obligation and cost-free discussion with an adviser.