What should I do with my company if I am retiring?

What are my options and how will they affect my retirement?

Retiring as an employee is easy. You hand in your resignation, serve your notice and then enjoy everything retirement has to offer. As a company director, it requires a little more thought. You have to consider what you’re going to do with the business and then take the appropriate steps to get there which may involve handing over the reins to a trusted successor, or alternatively either selling or closing the company.

We look at your retirement options as a company director and discuss which could be right for you.

What are the retirement options for company directors?

Pass the company on to a family member

If you have a family member who is already part of the business, handing over the reins could be a relatively simple solution. This can be a gradual process that suits your timeline for retirement and gives you the chance to get them up to speed in all that running the business entails.

While a family business that spans several generations is a great legacy to leave, the practicalities will require some thought. If you are financially secure, you could choose to gift the business to a family member with no expectation of a return.

Alternatively, you may need to generate a lump sum from the company so you can enjoy a comfortable retirement. In that case, selling the business can create buy-in for the family member and give you financial stability for later life. However, if family members are not in a position to buy your shares outright, you could consider a combination of selling and gifting, called a partial sale. It will make the business more affordable for your family member and still provide you with a lump sum.

“Called for help with closing non-trading companies and Chelsea advised me on what to do and instead of taking advantage as others would by taking on the case and charging loads. She gave me a solution that would cost £20. Very pleased with the service and thankful for Chelsea’s advice.”

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Sell the company to a third party

Another option is to sell the company to an interested third party. Potential buyers include new startups seeking entry into your market, competitors, other shareholders within the business and even employees.  

This can be an attractive solution as you’ll be able to extract all the value you’ve built up in the business over the years and receive a lump sum to put towards your retirement. 

How you do this depends on whether your business is a sole trader/general partnership or a limited company.

• Sole trader/general partnership

As a sole trader or partner, there’s no distinction between your assets and the assets of the business. If you want to sell the business, it would take the form of an ‘asset sale’. You would sell the assets and goodwill of the business to a buyer who will continue to run it as a going concern.

• Limited company

A limited company is a separate legal entity from its owner, which gives you more options when it comes to its sale. You can still opt for an ‘asset sale’ and sell some or all of the assets and goodwill to a buyer while retaining ownership of the company shares.

Alternatively, you could opt for a share sale, where you sell all your shares in the company. In this case, the assets will continue to be owned by the limited company but the company will have a new owner. This has the effect of providing a seamless transition of ownership and keeping all the assets together. 

If the company has other shareholders, you cannot simply sell the company without their approval. However, you can sell your shares in the business, either to the existing shareholders or another party, before resigning as a director.

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Close a solvent company via a Members’ Voluntary Liquidation

Selling a company is not always a viable option. You may not have family members who want to carry on the business or it may not be able to continue without your unique skills. In this case, the best option could be to use a Members’ Voluntary Liquidation (MVL) to close the company and extract the value from its assets. 

In an MVL, you must appoint a liquidator to close the business for you. They will identify and sell the company’s assets and use the proceeds to repay any creditors before giving the rest to you. They’ll then strike the company off the Companies House register and it will cease to exist as a legal entity. 

A Members’ Voluntary Liquidation is likely to be the most tax-efficient way to close your business if your company has assets worth more than £25,000. That’s because all proceeds extracted from the company are subject to capital gains tax rather than income tax.

Close a solvent company via strike-off

If there are no buyers for the business and it has minimal assets, the simplest way to close the company is to strike it off the register of companies. This is a straightforward and inexpensive process that you can do yourself. 

You can only apply for strike-off or dissolution if the company is solvent, there are no threats of liquidation and it has not traded in the last three months. The process typically takes around three months. Importantly, you must sell or transfer any company assets before the business is struck off the register or they will become the property of the Crown. 

Close a solvent company via Members' Voluntary Liquidation (MVL)

If your company is solvent and has a significant amount in the way of assets, you may benefit from closing the company using a formal insolvency process known as a Members' Voluntary Liquidation - or MVL.

With an MVL, all distributions made to shareholders are taxed as capital gains rather than income. This means your effective tax rate is likely to be much lower. The tax payable can be reduced even further thanks to Business Asset Disposal Relief which halves the payable rate of CGT down to just 10% on qualifying gains up to a lifetime limit of £1m.

Although there is a fee involved in commencing the MVL process, the tax savings directors can make using the process often eclipse this cost

Close an insolvent company via a Creditors’ Voluntary Liquidation

If your company is struggling financially and you think it’s time to call it a day, a Creditors’ Voluntary Liquidation (CVL) could be the best way to close it down.

In a CVL, you appoint a liquidator to identify and sell the company’s assets and distribute the proceeds to the creditors. They’ll then strike it off the Companies House register and any remaining debts will be written off.

This can be an effective way to draw a line under a struggling company so you can enter your retirement without having to worry about creditor pressure and threats of legal action.

Keep the business and hire someone to run it

You’re not under any obligation to sell your company or close it down when you retire. If you don’t need a lump sum for your retirement, another option could be to keep the business as a going concern and hire a managing director to run it for you. That would allow you to step back from day-to-day operations but still generate an income.

Many directors use this method to go into semi-retirement and still work part-time as a consultant to their own company. This can provide the challenges and camaraderie company directors often miss when they retire.    

Plan your exit well in advance

With an array of retirement options for company directors, you should consider your exit well in advance. Whether you want to sell your company or enter liquidation, we can help you evaluate each path carefully and provide confidential advice. Get in touch to discuss your options with an adviser or arrange a meeting at one of our 100+ UK offices.