Closing a Limited Company Made Simple

When it’s time to begin closing a limited company, the method you choose depends on your company’s situation. Here are five straightforward ways to do it:

Creditors Voluntary Liquidation (CVL)

If your company is insolvent and it’s the directors who want to close it, a CVL is the way to go. This process involves appointing a liquidator to wind up the company’s affairs.

Members Voluntary Liquidation (MVL)

If your company is solvent, and you wish to extract its assets, consider an MVL. This method allows for a tax-efficient distribution of the company’s assets to its shareholders.

Compulsory Liquidation

In cases where you’d rather not take action, creditors may start a court process to wind up your company. This is called compulsory liquidation.

Cease Trading and File Dormant Accounts

If your company has stopped trading and has minimal activity, you can file dormant accounts each year and continue to exist without trading.

Dissolve the Company

If your company is solvent and meets certain criteria, you can apply for dissolution (also known as strike-off) at Companies House. This is a straightforward way to close your company.

Do I Need Liquidation for Closing a Limited Company?

If your company is solvent, it’s possible to stop trading without formal liquidation. However, going through an MVL can be tax-efficient, especially if you qualify for Entrepreneurs’ Relief.

For insolvent companies, liquidation is typically necessary to close the company properly.

Creditors Voluntary Liquidation (CVL)

If your company is insolvent, you can choose to initiate a CVL to close it down. This requires:

• The company’s insolvency or the directors’ belief that it’s insolvent.
• A resolution passed by at least 75% of voting shareholders to wind up the company.
• The appointment of a licensed insolvency practitioner as the liquidator.
• Notification of the resolution to the Registrar of Companies and publication in the Gazette.
• A Decision Procedure to address matters like the appointment of the liquidator and remuneration.

Members Voluntary Liquidation (MVL)

For solvent companies that have ceased trading, MVL is an option. Here’s what’s needed:

• A declaration of solvency signed by the board of directors.
• A resolution passed by the shareholders to wind up the company.
• Appointment of a licensed insolvency practitioner as the liquidator.
• Publication of the resolution in The Gazette.
• Completion of the claims period, typically 21 days, and obtaining HMRC clearance before asset distribution.

Compulsory Liquidation

If you leave your company’s fate to creditors, they can initiate a Compulsory Liquidation through a Winding Up Petition. This leads to a court order to wind up the company.

Cease Trading and File Dormant Accounts

If your company has stopped trading and you wish to keep it open without much hassle, you can file dormant accounts and the annual confirmation statement. You may also request an exemption from filing Corporation Tax Returns with HMRC.

Company Dissolution (Strike Off)

For solvent companies that meet specific criteria, you can apply for dissolution at Companies House. You must confirm that, in the past three months, your company has not:

• Engaged in business activities except for those necessary for dissolution.
• Changed its name.
• Made disposals for value of certain assets.

Dissolution typically takes around three months, but objections from creditors can extend this period.

HMRC and Creditor Objections

Creditors can object to the striking-off process if they are owed money. Companies House publishes dissolution notices to inform creditors and gives them the opportunity to object. HMRC may issue a Winding-Up Petition if they are owed taxes.

Reinstatement after Closing a Limited Company

Even after being struck off, creditors can apply for reinstatement if they are owed money. So, make sure to resolve all debts before proceeding with dissolution.

Advantages and Disadvantages

Dissolving a company has its advantages, such as being quick and cost-effective, with no investigations into directors’ conduct. However, creditors can object, and assets left in the company may be lost.

Final Accounts and Company Taxes

As you close your company, update your accounts and file cessation accounts and a company tax return with HMRC. Pay any outstanding taxes, and consider the tax implications of extracting assets from the company.

Withdrawal of Strike Off Application

If you change your mind or your company no longer qualifies for dissolution, you can withdraw the application. This is done by notifying Companies House.

In conclusion, closing your limited company involves various options depending on your company’s financial status and your intentions. Carefully consider your situation and seek professional advice when necessary to ensure a smooth closure process.

It’s important to consider the pros and cons of each method before proceeding. Also, be aware of potential tax implications, especially if there are profits or assets involved. Consulting a professional for guidance during this process is advisable to ensure a smooth closure for your company.