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If you want to know How to close a Limited Company it can be done in four main ways depending on whether a company is solvent or insolvent. However, you must determine the solvency position before adopting the relevant closure procedure because insolvent companies usually cannot deploy solutions for solvent ones. For example, it is not possible to use the Members Voluntary Liquidation procedure to wind up an insolvent company.

When a company is insolvent it will usually leave creditors unpaid and thereby suffering a loss. Unsurprisingly there are more restrictions imposed on a company that is insolvent compared to a solvent company that has paid all its debts. Such restrictions will affect who has control of the company when it is being closed down.

Generally, if a company is insolvent then it will need to go into Liquidation with the process undertaken by a Liquidator. On the other hand, if a company is solvent there is greater freedom.

In the case of a solvent company, the winding up can be done either by the Directors or a Liquidator depending on the procedure chosen. A company being struck off can be controlled by its Directors whereas one going into solvent Liquidation still requires a Liquidator.

How To Close A Limited Company

Four Ways To Close A Limited Company

As a Limited Company is registered at Companies House to formally close it requires a legal process.

There are essentially four ways to close a Limited Company:

  1. Creditors Voluntary Liquidation for an insolvent company.
  2. Compulsory Liquidation after a winding-up petition is served on the company.
  3. Members Voluntary Liquidation for a solvent company to extract wealth with tax efficiency.
  4. Dissolve the company if you satisfy the requirements for striking off the company.
Four ways to close a limited company

To close a Limited Company usually involves the Directors and Shareholders agreeing to this course of action. A Director can present a Winding Up Petition for Compulsory Liquidation but this is relatively rare in comparison to the closure procedure being either Voluntary Liquidation or dissolution.

Close Insolvent Limited A Company

There are two ways to close an insolvent Limited Company:

  • Creditors Voluntary Liquidation
  • Compulsory Liquidation

Creditors Voluntary Liquidation To Close A Company

A limited company trades to generate an income and in the process incurs expenses to generate a profit. If a company is not profitable and has no potential to become profitable in the future, then it is likely to make sense to stop trading and close.

The Creditors Voluntary Liquidation process is by a country mile the most common way to close a Limited Company. As it is a voluntary process, it is initiated by a company’s Directors who instruct the Liquidator and if appointed he or she will realise the assets to enable a surplus after costs to be distributed to creditors.

creditors voluntary liquidation

Creditors Voluntary Liquidation Procedure

The requirement is that a Director can arrange the process provided:

  • The company is insolvent or that the Directors feel unable to declare that the company is solvent.
  • 75% or more of the voting shareholders must agree to the winding-up to enable the passing of the resolution for the company to be wound up.
  • The shareholders need to appoint a Liquidator who must be a Licensed Insolvency Practitioner.
  • Issue the resolution within 15 days to the Registrar of Companies for filing.
  • The appointment and resolutions must be advertised in the Gazette.
  • At the same time, the company must issue a notice to creditors convening a Decision Procedure to consider ‘Decisions’ on the constitution of a Liquidation Committee and the appointment of a Liquidator who in most cases will end up being the same as the Liquidator appointed by the shareholders.

Decision Procedure To Close A Limited Company

The Decision Procedure to close a Limited Company with debts can be arranged as set out in Rule 15.3 of the Insolvency (England and Wales) Rules 2016:

  • Virtual Meeting
  • Notice by correspondence

Directors must serve notice to the creditors about the Decision Procedure within 14 days of the passing of the Winding Up Resolution by the shareholders. Creditors must have at least 7 days’ notice of the Decision Procedure.

Not later than 3 business days before the Decision Procedure, a Statement of Affairs must be provided to creditors, setting out details of the company’s assets and liabilities. In due course, the Liquidator will need to file this with the Registrar of Companies.

Compulsory Liquidation To Close A Company

If you want to close Limited company you could opt for Compulsory Liquidation.

compuslory liquidation to close a company

Compulsory Liquidation would for shutting down a Limited company if the Directors or Shareholders have issued a Winding Up Petition. This involves a petition to the Court for an order that the company is to be wound up. It is a procedure that can be used for closing a Limited company with debts.

Upon the making of the winding-up order the Directors will usually need to attend on the Official Receiver to go through the company’s affairs to assist with the winding up to close the Ltd company.

Close A Solvent Limited Company

There are two ways to close a solvent Limited Company:

  • Members Voluntary Liquidation
  • Dissolution to strike off the company at Companies House

Members Voluntary Liquidation To Close A Company

One option for closing a limited company is a Members Voluntary Liquidation. This is the Liquidation of a solvent company when it has stopped trading and employing people.

If the company is solvent, it might be tax efficient for it to go into Members Voluntary Liquidation because the owners might qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). A distribution by a Liquidator is treated as a capital distribution and not income and subject to the potentially more favourable capital gains tax of 20% as opposed to income tax which can mean a much higher rate of tax is charged.

The benefit of this process is that a Liquidator is appointed for you to take care of the procedural issues that arise. The Liquidator will issue the notices and deal with the final tax affairs of the company for you. Upon appointment, the Liquidator will ask creditors to claim and advertise their right to claim formally. This protects from further creditor claims if they do not come forward. Once the claims period has been completed (typically 21 days) and confirmed that HMRC is not owed any money the Liquidator can distribute the assets to the shareholders.

creditors voluntary liquidation

In order for a Members Voluntary Liquidation the following process must be followed:

  • A statutory declaration of solvency must be signed by the Board of Directors
  • The shareholders must pass a resolution for the company to be wound up
  • A Liquidator who must be a Licensed Insolvency Practitioner (such as our CEO Elliot Green) needs to be appointed by shareholder resolution
  • The resolution must be advertised in The Gazette within 14 days
  • The winding-up resolution needs to be issued to Companies House within 15 days of being passed

For full details can be found in our guide How to prepare for members voluntary liquidation.

Company Dissolution Or Strike Off

If your company is solvent then you can file a DS01 at companies house provided you are able to confirm that the following does not apply within the last 3 months:

  • traded or otherwise carried on business
  • changed its name
  • engaged in any other activity except one which is necessary for the purpose of:
    • making an application for strike off or deciding whether to do so (for example, seeking professional advice on the application or paying the filing fee for the strike off application)
    • concluding the affairs of the company, such as settling trading or business debts
    • complying with any statutory requirement made a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business
  • creditors can object which will lengthen the process
  • the company can be fined if the process is abused by the company directors
  • if the company needs to go into liquidation the whole process will take even longer
  • debts are not waived so creditors can still apply to reinstate it years down the track
  • remaining assets such as intellectual property like trademarks which are later required are lost
dissolution to close a limited company

The strike off procedure to close a Limited Company is not an alternative to Liquidation. It is usually unsuitable as a procedure to close a company with debts. It is a process that is suitable for dormant companies or those without assets or liabilities.

If a company is insolvent and unable to pay its debts as they fall due, then to close a Limited Company by the strike off process for its dissolution is not usually appropriate. Instead, the Liquidation procedures of Creditors Voluntary or Compulsory Liquidation will likely be the way forward to close the Limited Company.

How Long Does It Take To Dissolve A Company?

It will usually take around three months from the point of filing the DS01 to the date of dissolution. You should however anticipate that it might take a little longer than that if there are some processing delays. The fee for filing the DS01 is £8.

If there are objections it will take considerably longer to close a Limited Company down.

Filing Dormant Accounts As An Alternative To Closing The Company

If you have stopped trading but you might still need a company then instead of closing the Limited company you could keep it open. Each year the only paperwork required to be filed is:

  • a set of dormant accounts
  • confirmation statement confirming the ownership and directors of the company

The actual cost of that is potentially negligible if you know how to file dormant accounts and deal with the confirmation statement. Those documents may not change materially for years.

file dormant accounts to close a company

Normally you need to file a Corporation Tax Return (CT600) with HMRC each tax year. However, you should be able to write to HMRC and obtain their agreement to avoid this. Simply write to HMRC informing them that the company is dormant. Tell them you anticipate there are no taxes to pay for the time being. In all likelihood, they will write to you saying that they have noted this on their system. Typically they ask you to notify them when you start trading again. Alternatively, they may give you a grace period. During a grace period, you no longer have to file corporation tax returns for a few years. They then ask you to get back in touch to confirm if trading has restarted.

You may well find this option for closing a Limited company attractive, being at limited cost and administration.

GET IN TOUCH FOR HELP

For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

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Disclaimer: How To Close A Limited Company

This page is not legal advice and is not to be relied upon as such. This article How To A Close Limited Company is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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