How to close a company you don’t want to run anymore

If you’ve decided it’s the right time to move on from your limited company, you need to think about how you’ll close it. If there’s a chance you might need it again, you could always make it dormant. That way, you protect the company name and can return to it whenever you like without going through the incorporation process.

However, if you’re sure you won’t need the business, the sensible thing is to close it. That will remove any filing obligations so you can move on. But what is the best way to close a company you don’t want to run anymore, how does each procedure work and what are the benefits? Here’s a quick guide.

There are lots of reasons why you might want to close a solvent limited company:

• You may want to retire and have no one to carry on the business
• A business partner may have left and you don’t want to continue running it without them
• There may be less demand for your products or services than you expected
• Perhaps you prefer the stability of working as an employee
• You may disagree with a business partner about the direction the company is taking
• Or the company may be a subsidiary that you no longer need

Whatever your motivation, the best way to close a company that can pay its debts will depend on how much profit it has to return to the shareholders. As a general rule, if it has less than £25,000 in profits and assets, Strike Off is the best option. If there’s over £25,000 to distribute, a Members’ Voluntary Liquidation is usually more tax efficient. 

Strike Off

Who is it suitable for? Voluntary Strike Off is suited to solvent companies that have ceased trading and have few assets or liabilities.

How does it work? To initiate Strike Off, you submit an application form online asking Companies House to remove your business from the official register. If the company meets the eligibility requirements and there are no objections, Companies House will strike the company off the register after around two months, and it will cease to exist.

What’s the process? Strike Off is a process you can administer yourself. Before applying, you must prepare the business by selling or transferring its assets away from the company, paying any debts, submitting final accounts and filing a company tax return. You can only apply for Strike Off if the company has not traded or changed its name in the last three months.

How much does it cost? You must pay a small fee of less than £50 when applying for Strike Off. You also pay Capital Gains Tax on the first £25,000 you take out of the company, and Income Tax on anything over that amount.

What are the benefits? Strike Off is the fastest and cheapest way to close a limited company, as you don’t need professional help. However, that means you are responsible for meeting all the legal requirements, and mistakes can be costly.    

Members’ Voluntary Liquidation (MVL)

Who is it suitable for? Members’ Voluntary Liquidation is best suited to limited companies that can pay all their debts and have retained profits and assets that exceed £25,000.

How does it work? As a formal liquidation procedure, you must contact and appoint a licensed Insolvency Practitioner to manage the liquidation on your behalf. They will take control of the company and close it down for you.       

What’s the process? Acting as the liquidator, the Insolvency Practitioner will wind up the company’s affairs, make employees redundant and value and sell the company’s assets. They’ll then use the proceeds to pay any outstanding debts before distributing the profits among the shareholders. The final step is to remove the company from the official register so it ceases to exist. The process typically takes between three and six months.   

How much does it cost? You must pay a professional fee to the liquidator for their work. An MVL usually costs between £1,000 and £4,000, depending on the complexity of the business and the number of assets. That fee is paid using the proceeds from the asset sale.    

What are the benefits? An MVL can offer significant tax advantages over Strike Off. In an MVL, all the profits paid to the shareholders are subject to Capital Gains Tax. You may also be eligible for Business Asset Disposal Relief, which reduces the rate of CGT you pay.

Your company is technically insolvent if it cannot pay its debts when they’re due. At that point, you must seek professional advice from an Insolvency Practitioner.

They will assess the company’s finances and determine whether it should cease trading. If the company is no longer viable or you don’t want to run it anymore, you can liquidate it voluntarily by putting it into a Creditors’ Voluntary Liquidation. 

Creditors’ Voluntary Liquidation (CVL)   

Who is it suitable for? Creditors’ Voluntary Liquidation is a formal procedure to close a company that cannot pay its debts. By liquidating the company voluntarily, the directors protect the interests of their creditors and close the company in an efficient and legally responsible way.

How does it work? The aim of a CVL is to close the company while maximising the return for your creditors. You must appoint an Insolvency Practitioner to act as the liquidator. They will take control of the company and administer the process on your behalf.

What’s the process? The liquidator will sell the company’s assets and invite claims from the parties it owes money to (its creditors). They then pay the creditors in a predetermined order, and as long as you have met your legal duties as a director, any debts the company cannot pay will be written off. 

The liquidator must also investigate the conduct of the directors and the company’s affairs as part of the process. They will report any unlawful conduct to the Insolvency Service, which could lead to penalties including:

• Fines
• Personal liability for company debts
• Disqualification from acting as a director
• A custodial sentence (for serious cases of fraudulent trading)

How much does it cost? You must pay the liquidator a fee to close the company on your behalf. The cost varies based on the company’s size, complexity and the number of assets and creditors, but it starts at around £4,000. The fee is usually paid from the money raised by the sale of assets. 

What are the benefits? Liquidating your insolvent company voluntarily helps you meet your legal duties as a director, gives you control over the timing of the process and can safeguard your reputation. You may also be eligible to claim director redundancy pay, which averages around £10,000.

If you’re ready to close a company you don’t want to run anymore, our company closure experts can help. We will assess your circumstances and advise you on the most appropriate closure method. We can also guide you through the process from start to finish while working to protect your position throughout. Get in touch for a free, same-day consultation or arrange a meeting at your nearest office.