How to close a limited company

I want to close my company: What is the process for closing down a business?

Closing a company can be done in a number of ways. You can close both solvent and insolvent companies through a formal process known as liquidation. There are three main types of company liquidation:

• Creditors' Voluntary Liquidation (a voluntary process for insolvent companies) 
• Compulsory Liquidation (when closure is forced upon the company via the courts)
• Members’ Voluntary Liquidation – or MVL (a voluntary process for solvent companies)

All three types of liquidation aim to achieve the same end result – the formal closure of the business and the subsequent winding up of the company – and all require the involvement of a licensed insolvency practitioner.

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How can I close an insolvent limited company or business?

If your company is insolvent - meaning it is unable to pay its debts and other liabilities - there are two types of liquidation processes which can be used to close the business down:

• Creditors’ Voluntary Liquidation (CVL) – A Creditors’ Voluntary Liquidation (CVL) is the most common type of company liquidation, and is used as a way to shut down an insolvent business which has outstanding debts it is unable to repay. As the name suggests, a CVL is a voluntary director-initiated process, often entered into when all other options of rescuing the business have proved either unsuccessful, impossible, or undesirable.

A licensed insolvency practitioner is appointed by the directors and/or shareholders of the company and they will handle the entire closing down process including liaising with creditors, dealing with all assets of the business, distributing returns amongst creditors, before formally dissolving the company at Companies House. Read more on our article to understand the cost to liquidate a limited company. 

• Compulsory Liquidation (WUC) – A Compulsory Liquidation is forced upon a business and typically commences following an order from the Courts to wind the company up. A company being forced into closure in this manner is typically the end result of a lengthy process on behalf of a disgruntled creditor (sometimes HMRC) who is attempting to recover money the business owes. Before a company is liquidated in this manner, it will often be presented with a Statutory Demand for payment first, which, if gone ignored, will lead to a Winding Up Petition (WUP) being issued.

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How do I close a solvent limited company?

A solvent company - that is one which can pay any debts and still have profits retained in the business - can be closed either through a Members' Voluntary Liquidation, or by applying to have the company dissolved at Companies House. 

• Members’ Voluntary Liquidation (MVL) – If you are looking to close a solvent company which has over £25,000 in assets, a formal liquidation process known as a Members’ Voluntary Liquidation (MVL) is likely to be the most cost-effective and tax-efficient way of achieving company closure. In order to enter into an MVL, the company must be solvent and able to repay any money owed to creditors within 12 months of the company being liquidated. Directors must swear a Declaration of Solvency attesting to this fact.

With an MVL, directors can take advantage of Business Asset Disposal Relief – formerly known as Entrepreneurs’ Relief – upon the closure of the company. This means that qualifying capital gains are taxed at 10% rather than the standard rate of CGT. This allows for company assets to be extracted from the business in the most financially prudent way possible before it closes. There is no limit to how many times you can claim Business Asset Disposal Relief, although there is a lifetime limit of £1m worth of relief.

How do I close a company that has never traded?

Limited companies that never trade are relatively common. It’s not unusual to set up a limited company and then go in a different direction. A company that has never traded won’t have creditors, employees or many other interested parties, which makes the closure process simple. 

Company strike-off, also called dissolution, is the simplest and most cost-effective way to close a company that has never traded. The process involves applying to strike your business off the Companies House register. If there are no objections, the company will be struck off and cease to exist after around three months.  

Once you have applied for strike-off, you should inform HMRC of your intention to close the business. You can do that by writing to Corporation Tax Services or contacting them via their helpline. HMRC will then be informed by Companies House when the strike-off goes through.

How do I close my company using the strike off process?

It is not always necessary to use liquidation in order to close an unwanted company. In some instances a business may be able to be closed through an informal process which does not require the involvement of an insolvency practitioner.

This way of closing a company is known as company strike off, and is achieved by submitting a DS01 form and paying the applicable fee. This form must be signed by a majority of the company’s directors, each confirming they are in agreement that the company should be struck off. A copy of the DS01 should also be sent to any interested parties such as HMRC, creditors, employees of the business, and other company members.

The process is as follows:

• Get the agreement of the majority of directors if you’re not the sole director
• Complete the strike-off application online or submit paper form DS01 if you cannot access the online service
• Submit your application to Companies House along with the filing fee
• Companies House will confirm that you have completed the application correctly
• Your strike-off application will be published in the Gazette and interested parties will have two months to object
• If no one objects, a second notice will be published in the Gazette, your business will be struck off the register and it will cease to exist

Strike off as a way of closing a company should not be seen as an alternative to formal liquidation proceedings, as the process is only suitable for a small number of companies, namely those which are dormant and/or without assets or liabilities.

If your company is insolvent and has debts it cannot afford to repay, strike off is not the correct course of action to achieve closure and you will instead need to opt for a formal liquidation procedure such as a CVL.

Once you submit the DS01 form, a notice will be placed in the Gazette advertising your intention to close the company. At this point, any company, individual, or body can object to the strike off application if they have good reason. This may be, for example, because you owe them an outstanding debt. If you attempt to strike off your company with outstanding debts, you should expect your strike off application to close the company to be suspended.

Should the company be eligible for strike off and no objections be received, the company will be removed from the register held at Companies House and it will cease to exist as a legal entity. In some instances, companies can be restored to the register at a later date following its closure. This is most commonly done when a creditor applies to the court to reinstate the company to the register so that outstanding debt can be recovered.

How Real Business Rescue can help you close your company

If you want to close down your company and are unsure as to the best way of doing this, Real Business Rescue can help. Our team of insolvency experts can talk you through all the available options, and suggest the next best step for you and your business. Call our expert advisers today to arrange a free no-obligation consultation. With over 100 offices located up and down the country, you are never far from expert help and advice.