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Dissolving a company can occur due to several reasons. For example, a business has achieved great success. The directors want to shut it and start a new venture, or maybe the company has been lying dormant since the day of its incorporation, or the directors can no longer follow the companies’ vision or want to close it down. Whatever may be the reason, the dissolution of a company primarily involves striking it off from the public register.
How to dissolve a company in the UK?
Company dissolution, also known as voluntary strike-off, refers to removing the company’s name from the public register managed by the Companies House. This means that the company will no longer be involved in trading and doesn’t need to file any accounts or annual returns. The company legally ends after the dissolution process.
Dissolution or voluntary strike-off only occurs when the company is solvent; it can pay its bills and clear all the debts before the process is completed. This is the best choice for those companies who no longer possess any assets or debts and want to retire.
Requirements for a Company to Be Eligible for Dissolution
A company cannot simply dissolve whenever it wants to. There are specific criteria that must be followed to be eligible for the process of company dissolution. The requirements are:
- No business activity or stock trading for the past three months.
- No change in the registered company name in the past three months.
- No current or proposed legal proceedings
- No threat of liquidation
- No outstanding liabilities like debts
- No outside arrangement in place with the creditors like Company Voluntary Arrangement (CVA)
- No disposition of any value of rights
If all the above criteria are met, company dissolution can be taken forward. It is better to take care of a few checkpoints before the process of dissolution begins to be at ease later:
- 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
- Notify all the parties who may object later to the process
After all of the above checkpoints are taken care of, you can begin the process of dissolution. It involves the following steps:
1. Filing the Paperwork With the Companies House With Form Ds01
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 majority of directors must sign the Form authorising the dissolution of the company. If the company has only one or two directors, all must sign the Form.
If you complete the Form through the Companies House website, it costs £8, otherwise £10. Remember not to pay this amount through your company bank account as it will certify as trading.
It should be noted that selling assets and their distribution among the shareholders is significant before submitting the DS01 Form; otherwise, after the strike-off, if your company still owns assets, the Crown can have the legal right on it, and you will lose yours.
Inform all the parties that can be affected (like creditors, employees, trustees and others) and HMRC within seven days of filing the Form and send them a copy
2. Waiting for the Acceptance Letter From the Companies House
Once the Companies House verifies all the information, you will receive an acceptance letter for the dissolution of the company stating that a notice will be published in the Gazette in the company’s jurisdiction area to inform about the company’s closure.
3. A Second Notice Confirming the Dissolution
Three months is provided to all third parties to object to the dissolution process. If no objections arise, a second notice will be published in the Gazette to confirm the company’s closure. This means that your company is legally off the register and no longer exists.
It is advised to store its data and all the paperwork regarding the dissolution for seven years after the process is completed.
Objection to Company’s Dissolution
If you fail to follow any of the above steps, you can receive an ‘Objection to Company Strike-Off‘ Letter. For example, a creditor objects to the dissolution as you owe money to him. He has the power to restore your company and re-register it by applying to the court and submitting an application to the Companies House. In this case, if you cannot pay the creditor, you can liquidate the company.
Advantages of Dissolving the Company
Closing a company through dissolution has many advantages such as:
- It is a rapid process. If your company is dormant, then the process is not time-consuming as a dormant company doesn’t have any assets or liabilities.
- It is a cost-effective process and cheaper than voluntary liquidation.
- The company no longer has to file any accounts or annual returns.
- The Directors are not subject to any investigation of conduct; they are not personally responsible for any debts and cannot be debarred from being directors of the company in the future.
Drawbacks of Company Dissolution
- Failure in providing correct information during the process can lead to serious consequences such as fines, imprisonment or disqualification from the position of responsibility in the company.
- It may seem like a complex process for some, and thus it is advised to hire a professional who can guide you through the process.
- The creditors can also object to the dissolution of the company. In that case, liquidation seems like a better option.