Understanding your Company Closure Options
When it comes to closing a limited company which is no longer wanted or needed, there are several possible options which can help you achieve this aim. The option which is right for you and your company will depend on a number of factors, including the financial position of the company at the time of closure.
How to Close a Solvent Company
Closing a solvent company which has substantial funds and assets to distribute to shareholders, is often best achieved by placing the company into a Members’ Voluntary Liquidation (MVL).
An MVL represents a tax-efficient and cost-effective way to release the value tied up in a company which is no longer needed. Trade will cease, an insolvency practitioner will be appointed to ensure all liabilities have been settled, before funds and assets are distributed to shareholders.
Funds released as part of an MVL process are classed as capital gains rather than income and are taxed accordingly. Depending on your situation, you may also qualify for Business Asset Disposal Relief (BADR) which will halve the rate of capital gains tax down to just 10%. This is subject to a lifetime limit of £1m worth of gains.
Although an MVL does incur some professional fees, the tax savings which can be made using this process often eclipses the cost of these.
Alternative Closure Options: Compulsory and Strike Off
- Compulsory Liquidation – In some instances, the closure of a limited company is something which is forced upon its directors rather than something which is entered into by choice. This is the case when it comes to Compulsory Liquidation. Compulsory Liquidation happens when the courts order a company – that they believe to be insolvent – to be wound up. This follows a creditor issuing a Winding Up Petition in a last ditch attempt to recover money owed to them by the insolvent company. If the company is unable to adequately defend or settle the Winding Up Petition, the court will issue a Winding Up Order and an Official Receiver will be appointed to handle the compulsory liquidation of the company.
- Strike Off – In some instances it may be possible to have a company struck off the Companies House register without having to go through a formal liquidation process. This can be achieved via a process known as dissolution and is a closure option suitable for solvent companies and those which have never meaningfully traded. Dissolution involves sending a DS01 form to Companies House and informing all creditors and any other interested parties of your intention to strike off the company. This will be advertised in the Gazette and creditors invited to submit an objection if they have reason to do so. As long as no objections are received, the company will be struck off the register after a period of two months. If your company is insolvent then strike off is not a suitable or viable option. Creditors are highly likely to block your attempt to dissolve your company, and this could lead to them taking further action such as petitioning for your company to be wound up compulsorily by the courts.
How can we help?
If you are looking at ways to close your limited company whether due to insolvency, declining trade, or simply a desire to move away from your current operations, it is vital that you seek advice from a licensed insolvency practitioner at the earliest possible opportunity.
An insolvency practitioner will be able to help you understand your options and highlight the solution most appropriate to your current circumstances and future ambitions. Begbies Traynor have a nationwide team of licensed insolvency practitioners here to provide expert help and advice when you need it the most.
