How to close or liquidate a solvent company

Should I liquidate or dissolve my limited company?

If you are the director of a solvent limited company you no longer need or want to run, there are two ways to close it. You can either dissolve the company by applying to have it struck off the Companies House register or liquidate it via a Members’ Voluntary Liquidation (MVL). 

The right process for you will depend on several factors, including the company’s eligibility, the value of its assets and your tax planning arrangements. Here we discuss the Dissolution and Members’ Voluntary Liquidation processes so you know what to expect, the benefits and the most appropriate procedure in your circumstances.

Is my business solvent?

The first step in the company closure process is to establish the financial position of your business. A solvent business can pay all its debts when they’re due and has assets that exceed the value of its liabilities. That includes contingent liabilities, which are debts that may arise in the future. Examples include an unresolved employee claim for unfair dismissal or product warranty claims made against the company by its customers. 

If your business has debts it cannot afford to pay or its liabilities exceed its assets, it is insolvent. You cannot close an insolvent business by dissolving it or entering into a Members’ Voluntary Liquidation. If you do, it could lead to serious legal and financial consequences for you personally. 

If you’re unsure of your business’s financial status, it’s always advisable to seek expert guidance from a licensed Insolvency Practitioner. At Real Business Rescue, we will assess your business’s financial position, guide you on the best way to close your limited company and provide the practical support you need.    

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How do I close a solvent company?

The most appropriate closure method for your business depends on its circumstances. If your solvent business has valuable assets or retained profits, the most tax-efficient way to close it is usually to enter Members’ Voluntary Liquidation. You must appoint an Insolvency Practitioner to liquidate the company on your behalf. Although you will have to pay their professional fees, the tax savings you can make on the distributions from the company make it more cost-effective if you have physical assets and retained profits worth upwards of £25,000.    

On the other hand, if your business has few physical assets and little remaining value once all the creditors have been paid, Dissolution is likely to be the cheapest way to close it down. You can dissolve it by applying to Companies House online. You can only apply to strike your company off the register if it meets certain criteria, such as not having traded or changed its name in the last three months.   

Closing a solvent company via Voluntary Dissolution

You can initiate Voluntary Dissolution, also called Strike Off, by completing and submitting form DS01 online or posting a paper application to Companies House and paying the appropriate fee. For online applications, that’s just £33.  

Before you can apply, you must not have traded or changed the business’s name or disposed of assets for at least three months. There must also be no ongoing repayment arrangements with creditors or legal action against it. 

To prepare for Dissolution, you must:

• Inform interested parties of your intention to dissolve the company
• Pay all outstanding liabilities
• Sell or transfer company assets
• Pay employees and make them redundant
• Send final accounts and a company tax return to HMRC
• Close company bank accounts

If nobody objects to your strike-off application, the company will be dissolved after two months. For tax purposes, up to £25,000 of physical assets and retained profits can be distributed to the shareholders as capital via Voluntary Dissolution. Anything over that amount is taxed as income. 

Closing a solvent company via Members’ Voluntary Liquidation (MVL)

If your business is solvent and has substantial retained profits or high-value physical assets, a Members’ Voluntary Liquidation is the most tax-efficient way to close it. 

One of the biggest differences between Voluntary Dissolution and an MVL is that you must appoint an Insolvency Practitioner to close the company on your behalf. Acting as the liquidator, they will wind down the business’s affairs, market and sell its physical assets and repay the creditors. They’ll then distribute the remaining funds to the shareholders before striking the company from the official register. 

An MVL is often more tax efficient than Voluntary Dissolution as all the funds distributed to the shareholders are taxed as capital rather than income. You may also be eligible for Business Asset Disposal Relief, which reduces the rate of Capital Gains Tax for higher-rate taxpayers to just 10%, although that will increase to 14% in April 2025, and 18% in 2026. That can lead to a substantial saving when closing a solvent company with retained profits of £25,000 or more. 

To close your solvent company using Members’ Voluntary Liquidation, you must:

• Sign a sworn Declaration of Solvency confirming the business can pay all its debts (including interest) within 12 months of the liquidation.
• Call a shareholders’ meeting within five weeks of signing the Declaration of Solvency. 75% of the company’s shareholders (by value of shares) must vote in favour of liquidation.   
• Appoint a licensed Insolvency Practitioner to act as the liquidator. The liquidator is responsible for closing the company and distributing its assets to the shareholders.

Once you have appointed a liquidator, the MVL process typically takes three to six months to complete, although more complex liquidations with multiple physical assets can take up to a year. 

I’m ready to close my solvent company

If you want to close a solvent limited company but are unsure how, we recommend seeking professional advice. At Real Business Rescue, we provide a free initial consultation to understand and assess your company and guide you on the most appropriate closure method. Get in touch to discuss your circumstances with our team or arrange a free meeting at one of our 100+ local offices throughout the UK.