The main factor to consider before closing down a company is whether or not it is solvent, as this affects the route to be taken. Also, it is worth noting that rather than dissolving it, allowing a solvent company to become dormant may be a more cost-effective approach, particularly if it might be needed again.
Being dormant means that the company remains on the Register at Companies House, is unused, but can be resurrected at some future point if the directors want to trade under the company name again. The annual costs of maintaining a dormant company are generally low - less than the cost of closing the company and then opening a new one later on.
Dormant companies are still required to submit an Annual Return to Companies House, as well as annual accounts and a Corporation Tax Return, which in this case would be zero.
An important point to remember is that should a transaction pass through the bank account of a dormant company – even something as innocuous as a small bank charge or interest – the company will be required to complete a full set of statutory accounts for the year in question.
There are two ways in which a solvent company can be closed:
If a business is no longer wanted and it is certain that it will not be needed in the future, one closure process involves being struck off the Register of Companies.
This is often the most cost-effective way, and reasons for closure vary – it may be that the director is retiring and there is nobody to succeed them, or simply that they are resigning to follow a different path in employment.
A company has to be dormant for a minimum of three months before it can start closure procedures, and it must not have changed its name during that time. After deciding on a closure date directors need to make sure that creditors have been paid, and that all the necessary day-to-day transactions are complete.
Once the date of closure arrives, it is not possible to carry out any further transactions apart from those in connection with the closure of the company.
Here is a summary of the necessary actions prior to closure date:
Cancel VAT registration, if applicable
Complete the final payroll, not forgetting P45s for all staff and directors
Pay all PAYE and NIC liabilities, and request that HMRC close down the payroll
Submit a P35 Employer Annual Return
Have the final statutory accounts made up and submitted to HMRC, along with the Company Tax Return, but only when all transactions have been processed through the bank account. You need to state that these will be the final accounts, and that the company is going to be dissolved.
Once notification has been received of the amount of Corporation Tax due, it is advisable to pay this as soon as possible because closure cannot be effected if there are any outstanding liabilities.
Monies remaining in the company bank account after all obligations have been met are usually divided between shareholders, as are any other assets of the business. It is important not to leave credit balances in the company bank accounts as they will revert to the Crown from the date of closure if not claimed and distributed.
After a period of three months from closure, assuming that all tax and other liabilities have been met, an application can be made to Companies House to have the company dissolved and removed from (or struck off) its register, using form DS01 (a fee of £10 currently applies), and a copy should be sent within seven days to shareholders, employees, creditors and anyone else associated with the company.
Companies House then publicly advertises the company’s closure to ensure there are no objections from third parties, or indeed that the directors have not changed their mind in the intervening period.
If no objections are made, it generally takes another three or four months before the company is actually struck off, when another advertisement is placed in the Gazette, publicly informing everyone that the company is now dissolved.
Once it is certain that a company is solvent, a majority of the directors must complete a Declaration of Solvency. A shareholders’ general meeting is arranged for a minimum of five weeks later, during which a resolution to wind up the company is passed.
A liquidator is also appointed to realise all assets and distribute the proceeds to creditors. Additionally, the resolution must be advertised in the Gazette within 14 days of the meeting. Once a liquidator takes charge of proceedings, the directors have no further power to influence company business.
In this case, company directors want to close the company but are unable to pay all creditors in full. Shareholders must agree to a winding up resolution by a majority of 75% (by value of shares). The resolution should be sent to Companies House within 15 days, and subsequently advertised in the Gazette.
A liquidator is approached to discuss all available options, and after trading has stopped a creditors’ meeting is held, usually three to four weeks after ceasing trading. Following a detailed review of company finances, a Statement of Affairs is presented at the meeting, after which the liquidator begins to recoup monies by selling company assets.
One of the duties of the liquidator is to investigate for instances of ‘wrongful trading’ during the period of insolvency, and if the directors are found to be at fault, they may become personally liable for company debts. Directors can also face fines and/or penalties, such as a ban from being a company director for up to 15 years. Our extensive office network comprises 55 offices across the UK with a partner-led service offering immediate director advice.
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