Closing a limited company is known by several terms – dissolution, company strike-off, and liquidation.
Understanding how to close a limited company depends on several factors and your motivation to do so. For example, this might be because your company can no longer pay its debts or because you can pay your debts, but the directors have agreed on closure.
You may be preparing to retire, want to free up assets from an existing company to fund a new venture, or want to close a subsidiary company that no longer serves a purpose. Or, simply, the business may not be working out as you’d hoped.
Maybe it’s not as profitable as you had planned, or your fellow directors might not share your vision for the future. Of course, whether you can pay your bills or not is a crucial factor in how your company closes – but either way, you must have the agreement of all company directors and shareholders to close a company.
How to close a limited company with a strike off
If you can pay your bills, then usually the cheapest and most efficient way to close a company is through a Company Strike Off. You ‘Strike Off’ a company by applying for a DS01 form, known as a Voluntary Strike-Off.
A Compulsory Strike-Off happens when a third party petitions for the closure of your company. This third party is usually Companies House and is sparked by the failure to return accounts or annual statements.
If your company finds itself in either situation, it is possible to rescue the situation or navigate a Strike-Off process detailed below. However, we highly recommend working with experts to do this.
Company Liquidation
If your company cannot pay its bills, then you are insolvent. In this situation, the people your company owes money to (your creditors) must be paid before your company’s directors are paid. Therefore, you must liquidate your company to pay your creditors.
Formal liquidation is different from a Strike-Off
If you don’t pay your creditors, your company could be forced into compulsory liquidation. However, you can avoid liquidation by applying for a Company Voluntary Arrangement.
Letting your company go dormant
You can allow your company to go ‘dormant’ so long as it isn’t trading. This means you cannot carry on receiving any income or any business activity at all – but you must still send your annual accounts and confirmation statement to Companies House. A limited company can stay dormant as long as you want.
How to close a limited company and start a Voluntary Company Strike-Off
Striking off a company isn’t as simple as flipping a switch – and the time it takes will depend on the size and complexity of your business.
Before you begin the process of a Strike-Off or dissolution, there will be formal steps you need to take outside of the Strike-Off process – plus any loose ends to tie up. Our checklist includes:
- Paying staff their final wage or making them redundant. Be sure to take advice on the rules here, particularly with redundancy
- Complete all outstanding work and collect any fees due
- Sell any company assets, distributing proceeds among shareholders
- Bring all utilities to an end
- Transfer website domains
- Prepare final company accounts and tax returns and send them to HMRC and Companies House, informing them that you wish to close the company in a letter signed by directors.
- If you have the available funds, pay HMRC any tax due. For example, VAT, Corporation Tax, PAYE, NI)
- Ask HMRC to close your payroll
- Deregister for VAT
- Close company bank accounts
There may be other obligations you have to meet when closing a company, depending on the type of business you operate. These are best discussed with experts such as ourselves.
Selling your assets and distributing them to the shareholders is extremely important at this stage before you submit a DS01 form. If your company is officially struck off the register and cash and assets still exist, they become the property of the Crown, and you have no legal right to them.
What is a DS01 form?
The next formal step in the Strike-Off process is submitting a DS01 form to Companies House. This is simple to complete and requires the following information:
- Company registration number
- Company name
- Signatures of the company’s officers authorising the Strike-Off
Companies House will check the information and respond with confirmation by post. Then, depending on where your business is based, they will publish a notice in the London, Edinburgh, or Belfast Gazette (the UK’s official journals of record). There are then three months when interested parties can object to the Strike-Off. This is why it’s crucial that accounts are accurate and debts are paid.
Using a DS01 form
There are certain conditions for using a DS01 form when closing a limited company that you must meet. They include not doing any of the following for the three months previous to submitting the DS01 form:
- Trading
- Changing your company name
- Engaging in activities other than those involved in dissolving the company or legal requirements. Crucially, this means that you can still pay for professional advice.
How much does a DS01 form cost?
The DS01 form is a reasonably inexpensive part of the process. The form costs £10 and is discounted to £8 when completed on the Companies House website. Be careful to pay this out of your pocket.
If you use the company bank account, you’ll technically still be trading! However, if you complete it offline, you’ll need to send a cheque in the post along with the form to Companies House. If you are based, then send it to Companies House in Cardiff. After that, it goes to the Edinburgh office in Scotland, and in Northern Ireland, you need the Belfast office.
Qualifying for Voluntary Strike-Off
To qualify for a Voluntary Strike-Off, you must meet certain conditions that hinge on whether you owe money. They include:
- Not having any outstanding liabilities
- There cannot be any petition to wind up the company or any other insolvency proceedings.
- There cannot be any outside arrangements with creditors, such as a Company Voluntary Arrangement.
The most crucial of the above points is not having any outstanding liabilities – if your company mustn’t have any debts. If it does and cannot pay them, you are insolvent, and you may likely be forced into liquidation.
Who do I need to tell about a Company Strike-Off?
You are legally required to notify interested parties that you have submitted a DS01 form within seven days of being sent to Companies House. Notified parties include:
- Your employees
- Shareholders (also known as members)
- Any directors who did not sign the DS01 form
- Creditors
- Managers or trustees of a pension fund set up for employees
What happens if I do not notify interested parties
You may be open to prosecution or a fine if you do not follow these steps or any of the processes outlined in the Strike-Off. It will also delay the Strike-Off, plus its possible parties who previously did not know about the Strike-Off may now object.
What loose ends are left?
After following the above steps, you may still need to revisit our checklist for loose ends. These may include:
- Transferring website domains (or cancelling them)
- Cancelling licenses
- Closing bank accounts
- Bringing utilities to an end
- Ending any monthly services you may have
Dissolution
Once the notice is published in the Gazette by Companies House and three months have passed without any objections, the company is officially dissolved and ceases to exist.
A second notice is then published in the Gazette, confirming it has been resolved. Be extra careful that no cash or assets exist at this point; otherwise, they become the legal property of the Crown.
What records do I need to keep after my company has been dissolved
You are legally required to keep the following records:
- Business documents must be kept for a minimum of seven years
- Employee records must be retained for 40 years – these include your employer’s liability schedule and policy
How soon can I start another company after a Strike-Off?
Straight away. If you want to start another company, there’s no stopping you from doing this at any point in the process. As soon as the company has been dissolved, you are free to start a new company with precisely the same name if you wish.
Can I change my mind? The short answer is yes. The directors must withdraw the application by sending the ‘withdrawal of striking off application by a company’ to the registrar if they change their minds.
How to close a limited company that has never traded
If your limited company is dormant or has never traded, closing it should be straightforward.
Liquidation may be appropriate if it has outstanding liabilities but has never traded (i.e., an initial loan). An application for a company dissolution could also be considered.
Generally, an application for dissolving your limited company would be appropriate when a company has never traded. This is because it is likely to have no assets and no current or contingent liabilities.
You should seek professional advice if you or the directors have any doubts regarding current or contingent liabilities.
Here at Future Strategy, we guarantee to dissolve your limited company for a fixed fee, from as little as £99 +VAT. So get in touch today for a free quote.
How to close a limited company with debts
Suppose you fear your limited company is failing due to debts becoming unmanageable. In that case, liquidation or an administrative dissolution may be a way of restarting your business, clearing any outstanding debts, getting rid of a poor reputation, and easing unhealthy relationships with creditors.
If you are considering taking this route, there are several restrictions you need to consider, together with strict rules to follow.
These have been put in place to prevent directors from starting a new company to escape their debt and the consequences.
A new business that emerges from the liquidation of an old one with the same assets and, typically, the same directors is known as a ‘phoenix company.’
An insolvent company has two ways to carry out liquidation: a Creditors’ Voluntary Liquidation (CVL) and a Compulsory Liquidation.
What is a Creditors Voluntary Liquidation (CVL)?
A Creditors Voluntary Liquidation (CVL) is a formal procedure voluntarily implemented by the directors of a company deemed insolvent.
A CVL could be the only course of action if a company doesn’t have enough money to pay all its debts. It is one of the most common ways for directors and shareholders to deal voluntarily with insolvency.
A CVL is typically started by directors, who agree to convene meetings of shareholders and creditors and discuss placing the company into liquidation.
Once this course of action has been agreed upon, the company’s directors will bring in an Insolvency Practitioner (IP) to deal with the CVL.
Once appointed by members and creditors, the IP has three main objectives:
- To realise the assets of the company.
- To agree on claims of creditors of the company.
- To investigate the affairs of the company and the directors’ conduct.
A CVL is appropriate when the company is deemed insolvent and when it does not appear viable, even after restructuring.
If you think your company might require a Creditors Voluntary Liquidation, contact the Future Strategy team now.
What is a Compulsory Liquidation?
Compulsory Liquidation is the process used by a creditor (someone who is owed money) to force an insolvent company into liquidation – to make it pay back that debt.
Sometimes known as winding up, Compulsory Liquidation is a procedure under the Insolvency Act and is usually led by a creditor pursuing the company for money.
A company’s insolvency usually is evident if it cannot pay its creditors on time. But, the dissatisfied creditor will first present an application to wind up the company.
It’s worth noting that even after the Compulsory Liquidation process has started, there may still be enough time to implement Creditors’ Voluntary Liquidation. However, this is initiated by the company’s directors rather than by its creditors.
What are the restrictions on starting a new company?
After closing an old one, an application is issued to Companies House when you start a new business.
Obviously, there are restrictions when closing a business laden with debts and starting a completely new one.
You should think about some factors when asking yourself, “can I close my limited company and open a new one?”
1. Reusing your old company’s name
There are legal restrictions for using the same or similar name as your old business when starting a new one.
According to Section 216 of the Insolvency Act 1986, if compulsory liquidation was used to liquidate your old company, it’s forbidden to use the same name or even something similar.
This makes it illegal for anyone who was a company director or a shadow director at any time 12 months before the liquidation to be involved for up to five years afterwards in a company with the same or similar name.
There are, however, three exceptions to reusing a company name in this instance.
Firstly, where the new business acquires the whole, or the majority of the total of the insolvent company, as arranged by an Insolvency Practitioner (IP) acting as the liquidator, administrator or administrative receiver, or supervisor of a voluntary arrangement.
To reuse the name in this circumstance, notice must pass in two forms under rule 4.228:
- A submission must be made to the London Gazette, the official public record, within 28 days of taking on the name of the company and purchasing assets of the former company from the liquidator. This notice must make clear that you are the director of a new company of the same or similar name.
- Each creditor of the insolvent company needs to be informed that you are the director of a new company of the same or similar name.
The second exception – under rule 4.229 – involves the new business requesting permission from the Court (also known as ‘leave’) to reuse the name of the insolvent company. Before you do this, you must consider the following two conditions.
- Court leave must be applied for no more than seven days after liquidating the old business.
- ‘Leave’ will be granted by the Court no more than six weeks after this date.
The third exception – rule 4.230 – carries the following conditions.
- The company had been known by that name for at least 12 months before it went into liquidation.
- The company must not have been placed into dormancy in the last 12 months.
2. Paying a security deposit to HMRC
If HMRC believes for any reason that there is a risk your new company may fail to pay its tax on time, it may request a security deposit – such as a fixed security payment or a bond.
If you fail to pay your taxes, HMRC will settle the balance with that security deposit. Please note that property or high-value items cannot be used for this security deposit.
3. Selling goods and assets
It is a fraudulent act to sell the assets of an old company at a price lower than their market value. However, a quick sale of assets can be carried out at a discounted price when the business is in distress.
It’s crucial that the business sale is legitimate, as creditors can later argue against selling assets at a discounted price in Court.
4. Transfer of employees
Transfer of Undertakings – Protection of Employment (TUPE) regulation does not apply to employees who transfer from an old company to a new one due to a CVL or Compulsory Liquidation.
As a result, working hours, contract terms, and other benefits can be changed without being deemed unfair.
5. Debt guarantees
A limited company is considered a separate legal entity, so you won’t be personally responsible for your company’s debts.
However, as the director, you will be held personally responsible if you have signed a personal guarantee and the company cannot repay its debts. In addition, if you have an overdrawn director’s loan account, the liquidator may pursue you to repay it.
6. Limited Credit Accounts
If your old company had a poor credit history and rough relationships with its creditors. They will unlikely provide a credit account for your new business without putting extra security in place, such as advance payment or tighter terms.
That’s it for this post looking at how to close a company. We hope that it has given you the answers you are looking for.
If you are looking to close your limited company in the UK or have tried and had a strike-off suspension from HMRC, don’t hesitate to get in touch with the Future Strategy team today to find out more. Our initial consultation is FREE.
We will advise on the options available for your specific situation and requirements. These solutions are wide-ranging, cost-effective, and flexible.
