Dissolving a Company in the UK
Dissolving a company is a formal process designed to close a limited company without debts in the UK.
If your company has debts, you should not attempt to dissolve it and a liquidation process will be required to close the business. If you do apply to dissolve with debts, a creditor may well object which will mean your application to dissolve will be rejected.
Dissolving a company is sometimes called ‘striking it off the register’.
If you need expert, affordable, experienced help from fully regulated and licensed Insolvency Practitioners who work with small business clients, please do contact us. We can guide you through as painlessly and as cost effectively as possible.
Reasons for Dissolving a Company
Why dissolve a company? Dissolution is the right choice for companies with no assets or debts, and when the company has no further use.
It’s typically chosen by directors approaching retirement, or where a company has never got off the ground, or where there is a dispute between directors.
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.
Steps to Take Before Dissolving Your Company
Before You Apply to Remove your Company from the Companies House Register:
- Make sure all business assets have been distributed to company shareholders
- Pay employees what they’re due, including redundancy payments
- Clear any HMRC debts
- Ensure company accounts and your final tax return are up to date
- Make sure you’re deregistered 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.
Where a company is dissolved owing money to HMRC and HMRC have not noticed (and objected to) an application to dissolve has been made (highly unlikely because HMRC keep a close eye on published lists of company dissolution applications) HMRC can still pursue debts even after a company has been dissolved. Read our full article on: Can HMRC Chase a Dissolved Company?
Make sure all interested parties know about the impending closure.
What is the Process of Dissolving a Company?
Here’s the basic process for how to dissolve a limited company.
(1) Liquidate Company Assets
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
(2) Settle Any Debts
Clearing debts is essential unless you wish to have the whole process halted via an Objection. If you have debts you can’t pay, you must liquidate the company via an insolvency practitioner.
(3) File 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. Or follow the Companies House process online here: https://find-and-update.company-information.service.gov.uk/close-a-company/
After being sent, copies of the letter must be distributed to employees, shareholders, creditors, pension managers or trustees, and of course directors.
You must follow the rules for paying employee redundancy, plus paying any final wages and salaries.
(5) Wait for the 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.
(6) 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.
Is Dissolution a Good Option for a Company with Significant Assets?
You can dissolve a limited company with assets but dissolution may not be the best option.
The more tax efficient method is members’ voluntary liquidation. This solvent liquidation process must be carried out by a licensed insolvency practitioner.
Companies who do this may benefit from business asset disposal relief, formerly known as Entrepreneurs Relief, which means you’ll pay less capital gains tax on qualifying assets.
Can You Dissolve a Company With Debts?
It is not uncommon for directors to ask us about the possibility of striking a company with debts off the register in the hope that HMRC will simply not notice. HMRC monitor all applications carefully and will immediately object if you attempt this course of action.
Objection to Dissolution
Failure to complete any of these steps above could mean you receive an ‘Objection to Company Strike off Letter. HMRC officers working with Companies House routinely check applications for strike off to ensure due process has been followed. If it hasn’t, they’ll want to know why.
Equally, if you owe money to a creditor and try to strike off the company to avoid paying, they are entitled to submit an objection. In fact, even if you successfully managed to dissolve the company completely, a creditor could submit an application to have you business restored to the register. You would then have no choice but to liquidate the company, if you cannot pay the debts, before legitimately being able to close the company.
How Long Does it Take to Dissolve a Company?
It takes at least three months for a company to be officially dissolved.
However, if the process is some tasks need to be completed before closing 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.
If the company is dormant, the process is much quicker. 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.
With a Bounce Back Loan
The short answer is you cannot dissolve a company with a bounce back loan. Companies with debts need to be closed down and liquidated with the assistance of an insolvency practitioner.
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.
Alternatives to Dissolving Your Company
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 the company is solvent, them a members voluntary liquidation is the most tax efficient way of closing down a solvent limited company with assets. A tax break known as Business Asset Disposal Relief (formerly Entrepreneurs Relief) can help reduce capital gains tax. You’ll pay just 10% of tax on qualifying asset.