If you decide to close a company, you will need to satisfy a number of requirements, and the dissolution process will depend on whether your business is solvent or insolvent – i.e., does the company have enough money to pay its bills?
If your company is able to pay its bills, it is solvent and there are two options available to you:
- apply to Companies House to strike your company off the register, or
- begin a members’ voluntary liquidation
If your company cannot pay its bills, it is insolvent. To close a company that is insolvent you must use the creditors’ voluntary liquidation process.
How to close a company that is solvent
Option 1 – Strike your company off the Companies House Register
If your limited company is able to pay all of its debts, the easiest way to wind up the business is to strike it off the register at Companies House. To do so, your company must meet all of the following conditions:
- It has paid all debts owed to creditors
- It has not traded within the past 3 months
- It has not changed its name within the past 3 months
- It is not under threat of liquidation
- It has no agreements in place with any creditors, such as a Company Voluntary Arrangement (CVA)
Directors are legally responsible for overseeing the proper closure of the business. Their duties in such circumstances are as follows:
- Notify all directors, shareholders, creditors, employees, managers or trustees of employee pension funds (if applicable), and any other parties who may have a vested interest in company about the application to strike it off. All of these individuals and organisations will be affected by a company’s closure and may object to any application being made.
- Ensure all business bank accounts have been closed.
- Cancel any domain names the company may have.
- Complete and deliver Form DS01 to Companies House along with a £10 fee. To be valid, this application must be signed by the majority of directors.
- Within 7 days of filing Form DS01, the directors must provide copies of the application to all parties with a vested interest, as mentioned above.
- Pay all wages or salaries due to employees.
- Inform HMRC that the company is no longer trading and is being dissolved.
- Share all assets amongst the company’s shareholders before it is dissolved.
- File a final Company Tax Return and statutory accounts with HMRC.
- Pay any Corporation Tax, and any other tax that the company owes.
- Retain all company documents and financial records for at least 7 years after dissolution.
If there are no objections to the application, Companies House will strike your company off the register within 3 months.
Members’ voluntary liquidation
A members’ voluntary liquidation is another process of winding up a solvent company. It involves using company assets to pay all money owed to creditors. If there is any money left over after the bills have been paid, the surplus income can be distributed amongst the shareholders. To close a company in this way, the following is necessary:
- Companies registered in England and Wales should make a Declaration of Solvency, whilst those registered in Scotland should request the Form 4.25 from the ‘Accountant in Bankruptcy’.
- A General Meeting should be held for shareholders to pass a resolution for voluntary liquidation. The declaration of solvency must be made within 5 weeks leading up to this resolution being passed.
- Within 14 days of the resolution passing, the company should place an advertisement in either the London or Edinburgh Gazette.
- A liquidator should be appointed to take control of the business and oversee the winding-up process.
- Form LQ01 should be submitted to Companies House by the liquidator within two weeks of appointment.
Close a company that is insolvent
If your company cannot pay its bills, you will need to implement a creditors’ voluntary liquidation. The following steps should be carried out in order to initiate the process:
- The shareholders should pass a special resolution during a general meeting at the calling of the directors to stop trading, wind up the company, and appoint an insolvency practitioner.
- An insolvency practitioner should be appointed to act as the liquidator and take control of the company’s closure.
- A creditors meeting should be held (with 7 days notice provided in the London or Edinburgh Gazette) to be presided by one of the directors, with the liquidators in attendance.
Within 15 days, the resolution to voluntarily wind up the company should be filed with Companies House. The directors are legally responsible for ensuring the interests of creditors are protected ahead of the interests of the company and its shareholders.