How to close your limited company

At the end of its life, a solvent UK company can be dissolved and struck off the Companies House register, therefore ceasing to exist, writes insolvency practitioner Lisa Thomas of Parker Andrews.

How to close your limited company – four options

It can be an emotional time if you’re an IT contractor who’s grown attached to their limited company but fortunately, there are four clear-cut dissolution scenarios:

1.  An ordinary dissolution

2.  Dissolution following a solvent Members’ Voluntary Liquidation (MVL)

3.   Dissolution following an insolvency procedure

4.   Dissolving an insolvent company without an insolvency procedure

1. An ordinary dissolution

This tends to apply where a company is solvent, and has less than £25,000 of distributable reserves. For example when directors are retiring, or the company is no longer needed.

The limited company can be ‘struck off’ three months after it has ceased trading by filing a DS01 form at Companies House.

Before striking off, the company should have wound down its affairs to include dealing with all outstanding liabilities, taxes, employees, assets and closed all bank accounts.

Key timelines

Within seven days of sending the application to the registrar, a copy must be sent to various parties.

The company will usually be struck off the register two months after the date of the notice, and is dissolved on publication of another notice in the relevant Gazette.

But Free-Work readers, a little warning! I have heard of many directors who discover all too late that they can no longer access the company’s funds post-dissolution.

Bona Vacantia

This is because once the dissolution is ‘gazetted,’ the company’s bank accounts will be frozen, and any credit balances passed to the crown, aka ‘Bona Vacantia’. The dissolved company’s remaining assets also belong to the crown.

Directors should ensure they follow the steps to dissolve their company carefully as offences committed potentially attract an unlimited fine; seven years imprisonment, and disqualification from being a director for up to 15 years, so there are serious consequences to abusing the process.

Other parties - and their actions

Companies House may strike off a company itself, in the event it believes that a company is not carrying on business or in operation.

Creditors and other parties can apply for a dissolved company to be restored, and the registrar can restore a company if they receive a court order. This is known as ‘administrative restoration.’

My top tip here? Always seek advice from a suitably experienced accountant before dissolving a company.

2. Dissolution following a solvent Members’ Voluntary Liquidation

Where a company has over £25,000 in distributable reserves, a solvent Members Voluntary Liquidation procedure may well be the most tax-efficient option as opposed to an ordinary dissolution.

Directors will need to appoint a licensed Insolvency Practitioner (IP) to place the company into liquidation, and distribute the company funds and assets to the shareholders.

The company can potentially save taxes by liquidating, and if they fit the criteria, the shareholders can often claim Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) on the distributions paid to them by the liquidator. Guidance should be sought here from both the company’s and shareholders’ accountants on the potential tax savings available.

Once the liquidation has been completed, the liquidator will arrange for the company’s dissolution.

3. Dissolution following an insolvency procedure

Where a company is insolvent (i.e. unable to pay its debts), a formal insolvency procedure is likely to be appropriate - liquidation for example.

Directors can liquidate the company via a compulsory court liquidation or voluntary liquidation. Once the liquidation is completed, the liquidator will arrange for the company to be dissolved.

Directors should seek advice from a licensed IP if their company is insolvent.

4. Striking off an insolvent company without an insolvency procedure

Where a limited company is insolvent but where there are insufficient assets to cover the costs, and the directors are unable or unwilling to pay for liquidation personally, directors can give creditors two months’ notice of their intention to file the DS01 form to dissolve the company.

However be aware Free-Work readers! Creditors can object to this. In particular, banks and HM Revenue & Customs will automatically object to the dissolution if there are debts and/or tax returns outstanding, effectively leaving the company in limbo unless and until a creditor forces the company into liquidation -- or the registrar strikes it off.

The Insolvency Services can investigate the dissolved company and can pursue directors personally if they have committed misconduct.

This option of striking off an insolvent company without an insolvency procedure – affectionately known as the Spongebob Plan – has been nicely explored here. And Free-Work readers, for even further bedtime reading you can always read the actual legislation relating to dissolving a limited company, here, and the accompanying official guidance.