Why are Companies Struck Off or Dissolved?
One of the most common misconceptions of company directors is that liquidation is the only way to close a business. Dissolution is technically a part of limited company liquidation, however, they are different. Company dissolution, also known as striking off, can be a simple, cost-effective way to close down a solvent company with no assets. Dissolution allows the directors to retain full control of the business throughout the process and, although creditors must be repaid before the closure, there is no requirement to hold a formal creditors’ meeting.
What does Dissolving a Company mean?
Dissolving a company is the process of removing the details of your limited company from the Companies House register. Once the company name is removed from the register, it no longer exists.
Importantly, only companies that are solvent can be dissolved. If there are any debts then they must be paid in full before the company can be struck off. Any company that is undergoing an insolvency procedure has been threatened with liquidation or has a creditor agreement such as a Company Voluntary Arrangement cannot be struck off.
Why might a Company be Dissolved?
There are a number of different reasons why a business owner might voluntarily decide to bring their company to an end. Here are a few common examples:
It’s often the case that a business owner wants to retire and there is no natural successor either from the family or the existing management team. That leaves them with little choice but to close the business. The business owner can apply to strike off the company as long as it is solvent and has not traded, sold any property rights or changed names in the previous three months.
To focus on a new Challenge
Rather than retirement, many business owners want to close an existing business so they can focus on something new. If the existing business is viable, selling it as a going concern is certainly an option to consider. If that’s not possible, you can apply to Companies House to have it struck off. Once the company is dissolved, any remaining assets will go to the Crown, so make sure you get everything in order before you apply.
To Reorganise a Group of Companies
Sometimes a company is no longer needed. Following a reorganisation of a group of companies, a business may be just a shell, with its assets having been transferred elsewhere. In that case, striking off is a cost-effective way to close it down.
It lacks Profitability
If a company is not making enough money to be worthwhile or there is insufficient profitability to develop or grow the business effectively, applying to strike off the business could be a sensible option.
There’s Conflict Between the Directors
Disagreements between company directors and shareholders are one of the most common problems businesses face. If differences in the direction the business should go, the directors’ roles or the products the business should offer cannot be resolved, dissolving the business may be the only option.
The idea never gets off the Ground
Sometimes a company never receives the backing it needs or gets off the ground in the way the owner(s) had hoped. If there’s no chance for your products or services then dissolution could be the last resort. If your fortunes could change in the future then you should consider keeping the company dormant. As long as you file an annual return and company accounts each year then it can be kept going indefinitely, removing the expense of restoring a dissolved company.
There are Challenges on the Horizon
The business might be solvent now but there could be challenges on the horizon, such as new market entrants or falling sales, which mean it’s the right time to call it a day. If the company has high-value assets then a Members’ Voluntary Liquidation (MVL), which treats all distributions as capital rather than income, could be more tax efficient than a dissolution. If there are few assets then applying to strike off the company will be the easier way to close it down.
How can we help?
Is now the right time to dissolve your company? Perhaps you’d like to find out more about the strike off process or want some help understanding your options? For confidential, no-obligation advice, please get in touch with our team.