Closing down a limited company is not easy and can be due to a number of different reasons. Depending on the company’s circumstances and financial position at the time of closure, there are several options available.
How to Close a Limited Company
Companies can be closed down by either a voluntary dissolution (strike off) or by compulsory liquidation. There are four main ways to close a company down depending on whether the company is solvent (able to pay its bills and liabilities), or insolvent, meaning that the company is in debt.
Closing a company can be done by way of a Voluntary Dissolution, Members’ Voluntary Liquidation (MVL), or to close a limited company with debts a Creditors’ Voluntary Liquidation (CVL) or Compulsory Liquidation (WUC) can be used.
Company Closure for Solvent Companies
The cheapest way to close a limited company that doesn’t have any debt is by voluntary dissolution/strike off, where companies apply to be struck off the Companies House register.
This inexpensive and informal option is preferred when a company has minimal assets or funds to distribute to its shareholders.
In the UK, Bona Vacantia or ‘ownerless property’ means that all the company’s assets will be transferred to the crown once it has been dissolved. Any property, land, cash and even intellectual property such as trademarks count as assets, so they will need to be extracted from the company prior to applying for a strike off.
Companies House Service
Voluntary Dissolution is straightforward and can be managed by the company directors. It costs £33 to apply for a company strike off online, or £44 to send the DS01 form by post, along with a cheque payable to Companies House provided that the company:
- Has not traded within the last 3 months
- Has not changed its name within the last 3 months
- Is not part of any legal proceedings
- Has not sold any property belonging to the business, known as making a ‘disposal for value of property.’
Additionally, before being dissolved a company must inform stakeholders of the intended closure, submit final statutory accounts to HMRC and pay any outstanding corporation tax.
How Long Does It Take to Strike Off a Company?
It typically takes three to four months to fully close a limited company by voluntary dissolution. Once the DS01 form has been submitted to Companies House, there is a two-month mandatory waiting period, during which time interested parties are given the opportunity to object to the closure.
Closing A Company with Members' Voluntary Liquidation (MVL)
Members’ Voluntary Liquidation is the other way to close a limited company that has significant retained profits or high value assets to distribute to its shareholders.
Tax Efficiency
The key difference between a Voluntary Dissolution/Strike off and MVL is that the profits distributed to shareholders via an MVL are subject to Capital Gains Tax, which can lead to a lower tax bill. MVLs do require 75% of shareholders (by the value of their shares) to agree to the company closure. All directors must also sign a 'Declaration of solvency' which confirms that the company can repay all its debts.
How long does MVL closure take?
The full timeline for an MVL is typically six months to a year depending on the financial complexity of the company closure. Once the MVL process is complete, the liquidator instructs Companies House to remove the business from the Register of Companies.
Close a Limited Company with Debt
If your company is in debt at time of closure and is unable to meet its debts or other liabilities, then it can only be liquidated by a licensed insolvency practitioner appointed by the company’s directors or shareholders, or in the case of a court-ordered compulsory liquidation, by an Official Receiver.
Creditors’ Voluntary Liquidation (CVL)
A CVL is the most common way of closing down an insolvent company and is a voluntary process initiated by the directors after all other options of rescuing the business have been unsuccessful. Once appointed, a licensed insolvency practitioner will handle the company’s closing down process; dealing with distributing business assets and paying creditors before formally dissolving the company at Companies House.
How long does CVL take?
A general estimate of CVL cases is around six to 24 months, however, this will strongly depend on the company's circumstances.
Compulsory Liquidation (WUC)
Also known as a ‘winding up order’, compulsory liquidation is when a company is forced to close by way of a court order. Creditors can petition the courts to have a company removed from the Companies House register, usually as a last resort to recover money that the business owes.
When a company is forced to close, all its assets are sold, and the proceeds distributed to outstanding creditors to pay back any money owing by the company. By forcing a company to close, creditors hope to collect the full amount of outstanding debt by liquidating company assets.
How long does WUC take?
The timescale of forced company closure will depend on the scale of the business and the complexity of its financial affairs. From the issuing of the winding-up petition and the beginning of the liquidation it usually takes three months, however, a complete liquidation can take several years before it is finalised.
We Are Limited Company Experts
Easy Digital Company helps small and micro companies open for business, but we also support our existing clients if they do need to close by making the process as smooth and straightforward as possible. If you want to find out more about how we can support your business goals visit Easy Digital Company or contact us and we’ll be happy to assist you.
