How to close a limited company
Limited companies need to be closed down for a variety of different reasons. We take a look at how to close a limited company and the points you should take note of.
Questions to ask are:
- Has the company been trading?
- Has the company got assets?
- Has the company got debts?
Non-trading company
If the company hasn’t been trading, and is classed as dormant or non-trading, the process is fairly straight forward. You have two options, the first would be to wait for Companies House to strike it off. However, that does come with some uncertainty as you do not know when that will happen. The second option is to go through the voluntary strike-off process where you can apply for the company to be struck off the Register of Companies, which is maintained by Companies House.
Restructuring
If the company has been trading then it is slightly more complicated. It depends on what levels of assets you have and also on the structure of the group. If you are looking to restructure, our specialists can assist with this.
If you are restructuring, companies can pay off all of their creditors, and rightly and properly transfer the assets to other companies within the group. Once this has been completed, the company can be left with no assets or liabilities and then go through the voluntary strike-off process, assuming that it has not changed its name nor traded, for a period of three months prior to the application to strike-off.
The strike off process
The strike-off process can either be initiated by the Registrar of Companies House or it is instigated by the company itself. After the application is made, an insolvency notice is placed in the London Gazette, which is one of the official journals of public record of the UK Government. This gives creditors the opportunity to contact the relevant parties to say that the company should not be struck off the Register yet as it still owes money.
If there are no objections, or if they have all been dealt with, then the company is struck-off the Register of Companies and does not exist anymore.
Why is this important?
If a company has been struck-off, then it means that:
- The directors stop being directors of the company so they no longer have to fulfil any duties to the company or its creditors.
- If somebody has a claim against that company, e.g. an employee, they can’t bring that claim against the company because that company does not exist anymore.
It also means that if by accident the company still has assets, which can happen, the company has ‘cash at bank’. You have to apply to the Court to have the company restored to the Register of Companies in order for the cash at bank to be dealt with.
You should ensure that:
- All VAT refunds have been processed
- All tax returns have been dealt with
- There are no other assets within the company
If there are any assets in the company once it is struck-off, they become ‘Bona Vacantia’, which means ‘vacant goods’, and they become part of the Crown and are dealt with by the Treasury Solicitor.
The liquidation process
A company going into the liquidation process can go down one of two routes; the members’ voluntary liquidation (MVL) and the creditors’ voluntary liquidation (CVL). This is more costly and complicated, where expert advice would be required.
An insolvency practitioner acts as a liquidator. The solvent route is the MVL process. This is where there are plenty of assets and they cover the costs of liquidation and eventually there is a full return to the shareholders. Assets are distributed to the shareholders to a certain value to represent their investment within the company. It can be a tax efficient route for shareholders to get shares out of the company before it is dissolved.
Shareholders might want to put their company through an MVL because they are retiring or because they want to take on a different challenge. However, they cannot set up a company doing the same, or similar, business for two years. If they do then Her Majesty’s Revenue and Customs (HMRC) will examine the return they got from the old company and look to retain the tax that should have been payable.
This is something to bear in mind if you are going down the MVL route.
The CVL route comes into play when closing a limited company with debts, which we look at in more detail here. This can be a daunting time for directors and raise certain challenges.
How can Blake Morgan help?
If there is a lack of clarity about what route your company needs to go down then our Insolvency & Business Support team can help. We can guide you through the strike-off or liquidation process ensuring no stone is left unturned. We provide efficient and effective business restructuring legal advice.
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