Once a company has come to the end of its natural life, the correct way to close it down to dissolve it formally. But what are the common reasons which might provoke the director of a limited company to shut down or dissolve their company.
We explain these below:
Cash Flow Problems
One of the biggest hurdles for any business is to maintain a healthy working capital cycle. This means that you have enough money available, at any given time, to keep the business running efficiently and pay suppliers when due. Once cash flow becomes inhibited, it is all too easy for businesses to start racking up debt. If these debts are not paid on time, creditors start to ramp up pressure which had a certain point may push directors to close the business.
Lack of Accurate Accounting
For obvious reasons, the company accountant plays a key role in the smooth running of any business. Where the accountant does not have sufficient skills, expertise, or organisational skills keep fully abreast of the company situation is all too easy to run into trouble. It is up to the directors to find an accountant with their finger on the pulse, and who can offer an immediate answer to the financial health of the business at any given time.
Lack of Leadership
The role of company director is a subtle, multifaceted, and demanding position which requires excellence in a number of key areas. Good directors have a wide vision for what may be coming down the line, continually evolving the direction of the business to meet the headwinds. Directors need to have coherent understanding all aspects of the business, all key staff members, and of course the financial position. In many examples of companies that have failed, the mismanagement or lack of expertise of a key director is a strong factor.
Disagreements Amongst key Partners
Internal disagreements or conflict can play a pivotal role in forcing company closure. The matter how clear the vision that business partners set out with, the journey of running a successful business involves continual re-evaluation. Many business partners fallout over which direction the company should take, for over key managerial decisions. As this conflict escalates it can only take a toll on business profits and at a certain point the simplest decision may be to dissolve the company.
When a business cannot pay its debts when they fall due, it is insolvent. At this point company directors no longer carry a primary responsibility to their shareholders, but to their creditors. Making contact with a licensed insolvency practitioner is the right thing to do at this stage. They will build give you an informed decision on the right course of action given your business situation. If the insolvency practitioner recommends liquidation, that process inevitably ends with the form of the solution the company status.
Where the business is insolvent, dissolution, also known as striking off, is not an option. Administration or liquidation are the only options.
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