Close a Limited Company
Author
Shaun Barton | Company Closure Expert
Ways to Close a Company
If you have taken the decision to close down your limited company, you may have noticed that there are a number of ways to achieve this. Depending on your company’s financial and operational position, you could look at closing your company by way of:
The option most suitable for you and your company will depend on a number of factors, the key one being whether your company is solvent or insolvent at the time of its closure.
Can I close my company if it is solvent or insolvent?
The good news is that you are able to close a limited company in the UK regardless of whether it is solvent or insolvent; the processes used to do this, however, are different. Your first step, therefore, is to determine whether your company is solvent or insolvent. This can be done by way of two tests; the balance sheet test and the cash flow test.
- Balance sheet test – If the company’s liabilities (debts) are greater than its assets, then the company is said to be balance sheet insolvent
- Cash flow test – If the company is unable to meet its obligations and outgoings as and when they fall due, the company is deemed to be cash flow insolvent
If your company is solvent, it can be closed using either a Members’ Voluntary Liquidation or alternatively by way of the strike off process. If the company is insolvent, it will need to be closed using a Creditors’ Voluntary Liquidation. An insolvent company can also be closed by way of a compulsory liquidation process if this is ordered by the courts.
What is the process for closing my limited company?
If you are closing your company by way of liquidation, then the whole process will be administered by the appointed liquidator who must be a licensed insolvency practitioner. It will be their role to liaise with any outstanding creditors, sell company assets, and complete the necessary documentation to instruct Companies House to remove the company from the register.
As director, you have an obligation to co-operate with the insolvency practitioner to allow them to do their job, which will typically involve providing information regarding assets, creditors, and any ongoing legal action against the company. You will also be expected to assist in the preparation of a Statement of Affairs document and passing certain resolutions; your insolvency practitioner will talk you through these elements of the process at the time.
If you are closing your company by way of strike off, then you will be responsible for ensuring this is done correctly. All outstanding liabilities of the company should be dealt with and any assets you want to take from the company should be done before you submit the strike off application. You should note that any assets remaining in the company after it has been dissolved will become ‘bona vacantia’ and ownership will pass to the Crown.
Strike off is achieved by completing a DS01 form and submitting this to Companies House. You must also ensure that any interested parties such as shareholders or outstanding creditors are sent a copy of this too. Your intention to dissolve the company will be advertised in the Gazette, and so long as no objections are received, the company will be struck off the register after a period of three months.
What is the best way to close my limited company?
The best way to close your limited company will mainly hinge upon its financial position. While strike off may seem appealing as a cheaper and quicker alternative to liquidation, this may not always be the most suitable route to take.
If you have debts to creditors including HMRC, you can expect for any strike off application to be objected to. On the other hand, if you have a solvent company with a considerable sum to distribute to shareholders, it may be more cost-effective to extract this money by way of an MVL and take the money as Capital Gains rather than income.
If you are at all unsure about how best to close your limited company, ensure you speak to a licensed insolvency practitioner before you go any further. An insolvency practitioner will take an objective view over your company and its affairs, and recommend the very best course of action going forwards.
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