Are you a Director looking to Close A Company?

If you are a Director looking at closing a limited company, Oliver Elliot can explain to you the options available to close it down and find a solution that is right for you.

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Solutions For Companies

Four Ways For Closing A Limited Company

Four Ways For Closing a Limited Company :

  1. Dissolve the company if you satisfy the requirements for dissolution.
  2. Creditors Voluntary Liquidation for an insolvent company started by the Directors.
  3. Members Voluntary Liquidation for a solvent company when you want extract your wealth.
  4. Compulsory Liquidation if leaving it to creditors to start court action against the company.

How to close a Limited company is a guide to stopping trading and winding down a limited company. A limited company trades to generate an income and in the process incurs expenses with the aim of generating a profit. If a company is not generating a profit and has no potential to become profitable in the future, then it is likely to make sense to stop trading.

Closing a limited company you will need for the Directors and Shareholders to agree to this course of action. It is possible for a Director or Shareholder to present a Winding Up Petition on a just and equitable basis but this is relatively rare. More common is for a company to be struck off at Companies House or placed into either Members Voluntary Liquidation or Creditors Voluntary Liquidation.

The following explains the process of what needs to be done to cease trading a typical limited company.

Stopping Trading A Limited Company

How To Close Company And Stop Trading

In order to stop trading a company needs to deal notify people and other businesses that it has ceased to trade. A company typically has many administrative requirements that need to be resolved to enable you to wind down the company and enable it to stop trading.

Customer And Suppliers

In order to start the process of cessation of trading a company will need to contact all of its existing customers and suppliers to notify them of the intention to stop trading.

Existing Obligations And Contracts

If your company has obligations under contracts with customers and suppliers that it needs to honour, then this could affect the company’s ability to stop trading and close down without obtaining professional advice.

If the company attempts to avoid those obligations and contracts then it could find itself in breach of contract and it could be sued for damages. If the company were to be sued, then it could find itself with liabilities and debts. As a result, this could mean that it is insolvent.

If a company is insolvent then it may not be able to close down without either going into Creditors Voluntary Liquidation or Compulsory Liquidation.

To avoid having to go into Liquidation if there are obligations and contracts that need to be honoured, you may be able to negotiate with the relevant customers or suppliers to agree to an orderly variation to these contracts to bring them to a halt. A customer or supplier that recognises that you do not wish to continue trading is likely to want to put in place new agreements with new trading partners. You can help and assist them with such a process by introducing them to potential new trading partners. You may find this oils the wheels enabling you to exist existing contracts in a mutually agreeable way.

Assets

The assets in the company are property of the company and need to be sold and realised for cash which can be distributed to the shareholders, subject to settling the company’s liabilities. Alternatively, the assets could be distributed in specie subject to its liabilities being satisfactorily provided for.

Bank Account

The company’s bank account needs to be closed with all its liabilities settled. Once that has been arranged then any residual funds will need to be distributed with appropriate provision for any HMRC tax liabilities.

Employees

If you employ people then they will have a contract of employment with the company. If the company stops trading and they have been employed by the company for two years or more then they will be entitled to redundancy.

Redundancy

You should check the terms of an employee’s contract of employment to see what notice periods they are entitled to as this could impact on the amount of any liability that the company has.

Auto-Enrollment

It is a requirement for most companies to auto-enrol their employees in a workplace pension scheme subject to certain thresholds being met. If your company has enrolled some or all of its employees in such a pension scheme and the company is stopping trading, then you will need to notify the pension provider accordingly.

HMRC – What Is Required To Close A Company

PAYE Scheme

If the company has a PAYE Scheme then you will need to contact the relevant PAYE office at HMRC and inform them of the intended closure of the company and file any required returns in relation to Benefits In Kind and Class 1A National Insurance Contributions.

VAT

If the company is registered for VAT then the company will need to notify the company’s VAT office at HMRC and prepare a final VAT return, paying over any remaining VAT liability that arises for taxable supplies up to the point of cessation of trading. It is quite possible that the company will be entitled to a VAT refund if the company has incurred expenses after it ceased to raises sales invoices and a new VAT quarter or period has resulted.

This process of closing your limited company will involve formal deregistration for VAT. You can etiher do this online at the HMRC Cancel Your Registration Page or by filing what is known as a VAT 7 Form by post.

Corporation Tax

Each year a company has to file a Corporation Tax Return (CT600). You will need to contact HMRC to inform them of the closure and submit a final CT600 for the period up to the final date of trading and pay over any remaining corporation tax liability.

Dissolve A Company / Striking Off A Company

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
  • the debts of the company are not forgiven and so creditors can still apply to reinstate it years down the track
  • if any assets have inadvertently left in the company such as intellectual property like trademarks which are later required they are lost save if the company is reinstated

Do I Need To Go Into Liquidation To Close A Company?

If a company is solvent it can stop trading potentially without necessarily needing to go into a formal liquidation.

If the company is solvent, it might well however be tax efficient for it to go into Members Voluntary Liquidation because the owners might qualify for Entrepreneurs’ Relief. A distribution by a Liquidator is treated as a capital distribution and not income.

If the company is insolvent then it is likely that it will need to go into liquidation to be closed down by a liquidator.

How Long Does It Take To Dissolve A Company?

It will usually take a period of 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 in all likelihood.

HMRC And Creditor Objections

If you attempt to strike off a company whilst owing monies to creditors they can object by filing notice at Companies House. It is therefore not something that should be done unless you have complied with the requirements.

Companies House will publish details of a company applying to be struck off in the Gazette. This is to enable creditors to be properly made aware of the situation and object so that they can be paid.

When Companies House receives the notice of objection it will suspend the dissolution of the company for a period typically of three months. A creditor that is seeking to resolve outstanding debts can generally apply again for the dissolution to be suspended. However, Companies House will generally only do this twice at the request of the creditor. Companies House may however still dissolve the company if it fails to comply with its filing requirements such as filing its accounts and confirmation statements.

If HMRC is owed money and objects then it is likely that they will issue a Winding-Up Petition to be heard and for the company to go into Compulsory Liquidation.

What To Do If You Receive Notice Of An Objection

If you have received notice of an objection by a creditor of the striking off of the company you should make prompt arrangements to pay them if you accept that the debt is due and owing.

If you dispute the debt then you can engage in the legal dispute but that will usually mean that the company will not be struck off. You will need to continue to file accounts and confirmation statements, so you will need to consider if the time and cost of doing that exceeds the amount you would otherwise have to pay to resolve the dispute.

If the company is unable either to pay the debt or for example engage in the dispute if this would involve having to pay lawyers for example then the company is insolvent. If the company is insolvent then it should consider going into liquidation to enable an orderly winding up of its affairs with the dissolution withdrawn. You should seek professional advice about the way forward in such an instance.

Reinstatement Of A Limited Company

Even if the company is struck off at Companies House a creditor such as HMRC, can apply for the company to be reinstated if they are owed money. It is, therefore, worth ensuring that you have resolved all the debts of the company before proceeding to strike it off.

Advantages Of Dissolution Of A Limited Company

The advantages of dissolving a limited company when there are no debts or objecting creditors are:

  • it is a quick process
  • it is cheap
  • there is no investigation as would be undertaken by a Liquidator into the conduct of the Directors
  • once dissolved all filing obligations such as accounts and confirmation statements cease
  • once dissolved the company in effect ceases to exist
  • you are free thereafter of the administration burdend of a limited liability company and to deal with its tax affairs

Disadvantages Of Dissolution Of A Limited Company

The disadvantages of dissolving a limited company are as follows:

  • 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
  • the debts of the company are not forgiven and so creditors can still apply to reinstate it years down the track
  • if any assets have inadvertently left in the company such as intellectual property like trademarks which are later required they are lost save if the company is reinstated

Final Accounts And Company Taxes

As part of the closing down process, you will have to bring the ‘number’ i.e. the accounts up to date. That will involve preparing and filing the cessation accounts or the Final Accounts.

These are the accounts from the end of the last period of account to the date that the company ceased trading. Ideally these Final Accounts should be filed at Companies House.

Company Tax Return

With the Final Accounts comes the additional statutory requirement to keep the taxman (HMRC) up to date with your figures. In doing so you will need to file your cessation accounts and company tax return with HMRC. You will need to confirm to HMRC that these are your cessation accounts, that there is no more trading from the point of cessation, and that you intend to formally have the company struck off.

If you have a corporation tax liability as a result of what the number-crunching reveals then you will need to pay this over to HMRC along with any other final company taxes. However, if your last period of trading was not profitable ie. if you made a loss then you may be able to close what is referred to as Terminal Loss Relief by carrying back the loss and and off-setting it against profits made by your company from earlier years in your final return.

Capital Gains Tax On Personal Profits

Assets that are extracted from the company before it is dissolved could result in liability for you to pay Capital Gains Tax, so it might be important to ensure you have considered a tax-efficient procedure for you personally.

Business Asset Disposal Relief could be available for you and this is something that is dealt with on your personal tax return. If the amount is worth more than £25,000, it will be treated as income and as a result, you will be obliged to pay income tax on it.

Withdrawal Of Strike Off Application

It is possible to withdraw your application for the company to be dissolved your intentions on closing down your limited company have changed or if perhaps your company no longer qualifies to be dissolved. For example only, the closing of your limited company will no longer qualify for the speedy dissolution route if it continues to trade, suddenly starts trading again or is insolvent. You can of course simply have changed your mind provided the company has not yet been struck off. All that is required is for a Director to issue a withdrawal form of notification to Companies House.

Filing Dormant Accounts Instead Of Closing A Limited Company

If you have stopped trading but you might still need a company then instead of closing down your 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 for 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.

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. If you do not restart trading then when this period is up, in all likelihood they will repeat that process with you.

You may well find this an attractive option for very limited cost and administrative paperwork to avoid closing your limited company down.

Members Voluntary Liquidation

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.

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 provides protection from further creditor claims if they do not come forward. Once the claims period has completed (typically 21 days) and HMRC clearance obtained, then the Liquidator can distribute the assets to the shareholders.

In order for a Members Voluntary Liquidation all that is required is:

  • A 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 about a Members Voluntary Liquidation can be found in our guide How to prepare for members voluntary liquidation.

Creditors Voluntary Liquidation

If your company is insolvent then in order for it to be wound up voluntarily it has to go into Creditors Voluntary Liquidation.

The Creditors Voluntary Liquidation Procedure

The requirement is that a Directors 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 Creditors Committee and the appointment of a Liquidator who in most cases will end up being the same as the Liquidator appointed by the shareholders

The Decision Procedure can be arranged in a number of ways as set out in Rule 15.3 of the Insolvency (England and Wales) Rules 2016:

  • Virtual meeting
  • Notice by correspondence

Directors must serve notice on 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.

A physical meeting will only be convened if 10% in value of all creditors’ claims or 10 creditors as a group or 10% of total number of creditors request a meeting within 5 business days of the notice being sent. The Decision Procedure will resolve the position on:

  • the appointment of the Liquidator
  • whether or not a Creditors Committee is to be established and who is to serve on it
  • determine the remuneration of the Liquidator

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

What Next? Do You Want To Close A Company? Our Expertise Is Just a Click Away

This article is provided for information purposes only. The facts of your own case should mean that this article: Closing A Limited Company and close down, should not be relied upon for the same. You should take independent professional advice. Contact us for a free initial consultation.

Disclaimer: Closing A Limited Company

This page: Closing A Limited Company is not legal advice and should not be relied upon as such. This page Closing A Limited Company is provided for information purposes only. You can Contact Us on the specific facts of your case.

Compulsory Liquidation

If you are interested in closing a limited company you could opt for Compulsory Liquidation.

Compulsory Liquidation would be used to close down a 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.

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.