If you are thinking about how to close a limited company then finding a cheap way to close a company is likely to be one of your considerations. However, you should also ensure the procedure you deploy is the right one that suits the facts of your circumstances.
If you are closing a company then the cheapest way needs to start by being the best way in the circumstances because if you get it wrong what is cheap can become expensive. Certain procedures should not be adopted to close a company. For example, when a company is insolvent you should not make use of the Members Voluntary Liquidation procedure which is reserved for solvent companies only.
Your Director’s duties should be considered to ensure that you act in the best interests of the company when choosing the correct procedure to close it down.
How To Find A Cheap Way To Close A Company
To find a cheap way to close a company the starting point is the financial position of the company. The financial position makes all the difference as to the available procedures. Is it insolvent or solvent?
If a company is solvent then it can be closed down through the voluntary dissolution process at Companies House or via a Members Voluntary Liquidation.
If a company is insolvent then it can be wound up mainly using either the Creditor Voluntary Liquidation procedure or through the issuing of a winding up petition for Compulsory Liquidation under a Court’s Order.
Cheap Way To Close A Solvent Company
On the face of it, using a DS01 form to strike off a limited company appears to be the cheapest way to close a solvent company. It can be done for as little as £8 online. However, certain rules need to be followed very strictly as otherwise for example a creditor that is not notified might be able to restore the company to the register at Companies House.
Whilst a Members Voluntary Liquidation (“MVL”) procedure will require the company to use some of its assets to pay an Insolvency Practitioner to be the Liquidator to close the company, the professional fees do not need to be all that expensive. Some Insolvency Practitioners advertise their fees to be even lower than £1,000 in some cases.
Although the Liquidator’s fees will be substantially greater than the £8 payable for voluntary strike off the overall cost to you could be lower if you used the MVL process because if there are assets greater than £25,000 (in light of Section 1030A of the Corporation Tax Act 2010) then voluntary strike off would result in the distribution of the assets to shareholders as being treated as a dividend and therefore subject to income tax.
However, if the MVL procedure is used then a distribution by a Liquidator is treated as a capital distribution, subject instead to capital gains tax. Unlike the higher rates of tax payable under income tax, capital gains tax is typically restricted to a rate of 20%. Through the tax savings it is often the case that an MVL is a far cheaper procedure overall for shareholders. It is even possible for the rate of capital gains tax to be reduced further to 10% if the distribution qualifies for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).
Cheap Way To Close An Insolvent Company
It is in theory possible to use the voluntary strike off process to close an insolvent company. However, creditors often object to this and then look to force the company into Compulsory Liquidation. Whilst this may not cost the company directly because the expense will be incurred by creditors, it usually takes longer to winding up order up a company compared to Creditors Voluntary Liquidation.
If you continue trading during this period then you may be at added risk of personal liability arising from what is legally known as Wrongful Trading.
If you as a company Director are looking to be proactive and be responsible in line with your Director’s duties then the most common procedure deployed to close an insolvent company is Creditors Voluntary Liquidation (“CVL”). The Director initiates the Liquidation process and appoints an Insolvency Practitioner to liquidate the company. But is it a cheap way to close an insolvent company?
Well if you are considering how much does a liquidation cost you might be surprised that it can be cheaper than you think. There are firms of Liquidators that will do a CVL from around £1,500 which could be considered a cheap way to close an insolvent company.
