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Closing a company depends on various factors, most important of which are your company’s financial status and the director’s will. Other factors may include freeing up assets to invest in a new venture, closing a subsidiary company that is no longer useful, or maybe not working out as planned.
Whatever may be the reason, the agreement of all directors of the company and the shareholders is required to close the company. The best method to close a limited company will depend on whether it is solvent or insolvent at the time of closure.
How to Close a Limited Company in the Uk?
A company is regarded as a solvent if it can pay all the bills and does not owe money to any person, company or HMRC. A company is stated as insolvent if it is under debt and owes money to Her Majesty’s Revenue and Customs or any creditor, hence, unable to pay its bills.
Closing a Solvent Limited Company
1. Striking Off
If the company can pay all bills, this is the most efficient, cheapest and easiest way to close or dissolve it. But to strike off a company, all of the following requirements must be satisfied:
- It did not carry out any business activity or trade for three months.
- It did not change its registered name in the past three months.
- It does not have any proposed or ongoing legal proceedings.
- It did not dispose of any value of rights.
- It does not have any outstanding liabilities, i.e., no debts.
- It doesn’t have any outside arrangement with the creditors.
The company can be Struck Off if the above criterion is met.
Before the process of dissolution or Strike-Off begins, you need to take care of a few checkpoints other than the process itself.
- Payment of final wages to all the employees
- Payment of all debts and collection of any due fees
- Selling all company assets and distribution among all shareholders of the company.
- Bringing all utilities to an end
- Transferring or cancelling website domains
- Preparation of all final accounts and sending them to the Companies House and tax returns to HMRC, along with a letter signed by all the directors to inform them that you wish to close the company.
- Payment of any due taxes to HMRC (like VAT, PAYE tax, NI, Corporation Tax)
- Asking HMRC to close your payroll
- Deregistration of VAT
- Closing all the bank accounts of the company
- Cancellation of licences
- End any monthly services that you may own
After all of the above are taken care of, fill out the DS01 Form to be submitted to the Companies House. You need to give details such as your company name and registration number, and the Form must be signed by the majority of directors authorising the Strike-Off. If you complete the Form through the Companies House website, it costs 8 euros, otherwise 10 euros. Remember not to pay this amount through your company bank account as it will certify as trading.
Selling assets and their distribution among the shareholders are extremely important before submitting the DS01 Form otherwise, after the strike-off, if your company still owns assets, it may become the property of the Crown, and you lose your legal right to it.
After submitting the form, all notifiable parties such as creditors, employees, trustees and others, must be sent a copy of the Form within seven days.
Once the Companies House verifies all the information, a notice will be published in the Gazette in the company’s jurisdiction area to inform about the company’s closure. Three months is provided to all third parties to object to the Strike-Off. If no objections arise, a second notice will be published in the Gazette to confirm the company’s closure and is struck-off from the register.
2. Members’ Voluntary Liquidation
When the company cannot meet the Strike-Off criteria, it can use this process. The following steps are required:
- Declaration to pay all debts within 12 months
- Proposal to voluntary liquidate the company with 75% votes of approval
- Within 14 days, a notice must be published in the Gazette.
- Appointment of the liquidator to take control and oversee the winding up of the business
- The liquidator will submit the LQ01 Form to the Companies House within two weeks of their appointment.
Closing a Dormant Company
Closing a dormant company doesn’t involve a complex process.
It has two options:
If it has any outstanding liabilities, such as an initial loan, since it never traded.
An application needs to be submitted to the Companies House, and it’s done since it does not have any assets or liabilities.
Closing an Insolvent Limited Company
1. Creditors’ Voluntary Liquidation
It is a process started voluntarily by the company’s directors if it cannot pay its bills and is often the most expensive way to close a company. The directors must call a general body meeting to discuss the matter with the shareholders. After the meeting, the winding-up process must be initiated with the following steps:
- Appointment of liquidator to take charge and oversee the process
- Sending the resolution of the shareholders to Companies House within 15 days
- Publishing the resolution in the Gazette in proper jurisdiction area (London/Edinburgh/Belfast)
After the resolution is passed, a creditors’ meeting must be held within 14 days, with a seven-day notice period published in the Gazette. A summary of all the company’s assets and liabilities must be shown in the meeting, and a copy must be provided to the liquidator.
Suppose all the assets are converted to cash and are paid to the creditors. In that case, the liquidation process is completed, and the company will be struck off from the register within three months after the liquidator’s final meeting.
2. Compulsory Liquidation
If the insolvent company cannot reach a compromise or an agreement with the creditors, the creditors can apply to forcefully liquidate the company to the court. A liquidator will be appointed, and all the assets would be sold by them and converted to cash to be paid to the dissatisfied creditors. The creditors or HMRC can force the liquidation, and they are responsible for paying the cost of the petition required for the company’s closure.