Striking off a Company vs. Members’ Voluntary Liquidation
If you run a solvent limited company that has ceased to trade then you have two choices about how to close the business down.
In this article, we’re going to explore these two options and look at why striking off your company could be the easiest and most cost-effective way to close your company down.
Should I Choose Strike off or Members’ Voluntary Liquidation?
Striking off the company is the simplest and most cost-effective way to close but is only an option for companies that:
- Have not traded or sold any stock in the last three months;
- Have not changed names in the last three months;
- Can demonstrate their solvency
Before the company is struck off its share capital, reserves or any other assets should be distributed to its creditors and shareholders accordingly. The maximum value of company assets and share capital that can be distributed on strike off is £25,000. Any funds that exceed this limit will be taxed as income. For that reason, if you are a higher rate taxpayer or the company’s assets are likely to exceed £25,000, a Members’ Voluntary Liquidation could be the better option.
A Members’ Voluntary Liquidation (MVL) is a formal process that can be used to close down a company in a tax efficient way.
The MVL process is relatively quick and easy, but it is more expensive than applying to have the company struck off. That’s because a liquidator must be appointed to realise and distribute the assets to the creditors and shareholders on the company’s behalf. That brings administrative costs. However, this option may still make more financial sense due to tax considerations.
Considerations when Choosing Strike off vs. Liquidation
Our insolvency practitioner, Chris Andersen, offers the following insights on areas to consider when deciding between MVL or dissolution.
Strike off– Company dissolution is only possible if no insolvency procedures or threats of legal action exist or are pending against the company. The company must be solvent and the members, creditor and employees must be informed about the strike-off. The funds may not be distributed lawfully if this is not the case.
Members’ Voluntary Liquidation – a Declaration of Solvency must be signed by the company directors confirming the company can pay all its liabilities within a maximum period of one year. The appointment of a liquidator ensures all other statutory procedures are followed.
Strike off – If any irregularities come to light or if a creditor who has not been informed about the company’s closure makes a claim at a later date, your conduct as a director will be investigated. That could lead to a financial penalty, liability for company debt or disqualification as a director.
Members’ Voluntary Liquidation – On signing the Declaration of Solvency, if it later emerges that company liabilities do exist then you could find yourself responsible for those debts. The other penalties mentioned above may also apply.
Strike Off – The costs of a voluntary strike off are much less than an MVL, but it is not appropriate in every case. Strike off might be the best option for companies with no or very limited assets, or for sole directors who want to retire. In more complicated cases, the legal risks and tax costs need to be considered more carefully.
Members’ Voluntary Liquidation – This option costs considerably more, but the benefits could outweigh the cost if the company has significant assets. The assistance of a liquidator will provide greater reassurance that all your legal obligations are being met.
How can we help?
At Company Debt, we offer independent, confidential and no-obligation advice for company directors who are looking to close their business. We can help you identify the best route from a tax perspective and ensure you receive the protection you need. For more information, please contact our team today.