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How to close a limited company

Posted on: Sunday 5th July, 2020

How to close a limited company

There are several ways to close down a limited company, the best one for your business depends on its financial situation and what you want to achieve as part of the closure.

  • If there are no debts – If your company is solvent you can have it dissolved through the strike off process. Dissolving your company means requesting its name to be removed from the register held at Companies House. This is done by completing the DS01 form and paying the fee, currently £10.00. A notice of your intention to strike off your company will be placed in your local Gazette. Following a period of two months, your company will be struck off and will cease to exist.

During this two month period, anyone can object to the striking off application and ask Companies House to keep your company active. This is likely to be the action taken if you have any outstanding creditors. Once your company is struck off the register it no longer exists, and consequently cannot be chased for any money it owes. It is therefore in a creditor’s interest to ensure your company remains active and on the Companies House register.

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Strike off is only for those companies who do not owe any money. If your company has outstanding debts that it cannot pay, you will have to consider a formal insolvency process instead.

  • If there is money in the company which you need to extract – If your company has reached the end of its profitable life, or you simply want to move on and retire, you need to ensure it is closed down in the correct manner. If there is money tied up in the company and you opt of the dissolution method, all assets become ‘bona vacantia’. This literally translated as ownerless property, and by law it will be passed to the Crown for ownership.

If you have money or assets you want to extract from the company, the best way of doing this is a tax-efficient manner is to opt for a Members’ Voluntary Liquidation (MVL). This allows you to take advantage of Entrepreneurs’ Relief (EF) which can save you a considerable amount in tax. ER allows you to pay a reduced about of Capital Gains Tax on disposals up to £10 million.

  • If there are debts – If your company has debts which it is unable to pay back, these need to be dealt with as part of the closure of the company. This process is a type of liquidation known as Creditors’ Voluntary Liquidation (CVL). A licensed insolvency practitioner will be appointed to facilitate the closure of your business. As all debts associated with a limited company belongs are the debts of the company rather than the individual directors, following the liquidation any outstanding debts will be written off.  Creditors will not be able to chase you for payment unless you have personally guaranteed any of the debt. If you have signed personal guarantees you should take advice on this before proceeding with the liquidation.

Depending on how long you have been running your company, you may be entitled to redundancy pay once your company is liquidated. Find out more about your eligibility for redundancy and how much you may be able to claim here.

Before closing your company, you should seek expert help and advice to ensure you are meeting your obligations as a director. If you would like to be assessed for potential directors’ redundancy, give our experienced advisers a call today. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.

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