Dissolving your business probably isn’t something you want to think about. After all, you started it to be successful, right?
But given that almost 1 in 5 businesses fail every year here in the UK, it’s a topic we can’t ignore. If we like it or not, it’s part of running a business.
So in this article we answer all the frequently asked questions about dissolving a limited company, just in case you need that information one day.
Why dissolve a limited company?
Let’s start with reasons to dissolve your business, because it doesn’t always have to be a sad thing. There are several scenarios in which closing down your limited company is the best option:
- Your business isn’t profitable any more
- You want to retire/move on and don’t have anyone/don’t want to pass on your business and don’t want to sell it
- You tried selling it but can’t find a buyer
- You have decided to change to a different business structure, such as sole tradership
How do you dissolve a company?
There are several ways to close down a limited company, depending on whether your company is solvent or insolvent. If your company is solvent, so can still pay its bills you can choose:
- Voluntary strike off
- Member’s voluntary liquidation (MVL)
Voluntary strike off is the quicker option. After you have stopped trading for a minimum of 3 months, during which time you can wind down your business, you complete the DS01 form and pay a small fee.
If nobody objects to your application, Companies House will strike off your company from the register after three months. Then you just have to remember to keep your company records for 40 years.
An MVL is the more hands-off option, but takes longer. You appoint an Insolvency Practitioner, which you can find on the government website. They prepare a declaration of solvency which all or the majority of directors have to sign.
Then you appoint a liquidator who will wind down the business and remove it from the register. Then you just have to keep your records for 40 years.
If your company isn’t solvent, you can dissolve it by:
- Going into administration
- Creditor’s voluntary liquidation (CVL)
For the former, you appoint a licenced Insolvency Practioner as administrator, who will take over the business and within 8 weeks tell you what they plan to do with it. They can close it, agree fixed payments with creditors so you can continue to trade or sell it to another company.
A CVL works similar to an MVL, but all the money that is made by selling assets is used to pay creditors. It has to be approved by at least 75% of shareholders but can be forced by creditors if that doesn’t happen.
If you want to know more about these different options in more detail, read our full guide about how to dissolve a limited company, including a free downloadable checklist for closing down solvent companies.
You can also use a Company Formation Agency to help you dissolve your business. For a fee, they will take care of everything for you.
You can save yourself the hassle of preparing and submitting the legal paperwork by using a company dissolution service like the one we recommend from 1st Formations.
How long does it take to dissolve a limited company?
The answer to this question depends on if your firm is solvent or insolvent, and which method you use. If your company is solvent, and you choose to strike it off voluntarily, the entire process can take about 6 months.
This includes the 3 months of not trading and completing your final admin tasks, and the 3 months after a notice is published for the process to be complete.
Once this happens, a second notice is then published, confirming it has been resolved. Any remaining assets or cash in the business at this point will become the legal property of the Crown.
An MVL takes about 12 months from start to finish. Shareholders will usually receive around 75% of these profits within three months, and the rest within the following two months.
For insolvent companies, this process can take longer – particularly if you enter administration.
What records do I need to keep after my company has been dissolved?
After you have dissolved your limited company, you need to keep all business documents for a minimum of seven years, and employee records for 40 years. This includes your employer’s liability schedule and policy.
For best practice, we’d recommend keeping all records on file in case you ever need them, including accounting records, contracts, shareholder information, meeting minutes, operating procedures, etc.
While not all of these might be legally required to be kept, it’s still a good idea. As it will make things easier if any issues arise after the closure of your business, because you still have access to key documents.
Can I start a new company after I’ve dissolved a limited company?
Yes, you can start a new firm whenever you want. If the company that you dissolved was solvent, you could also start a new one with precisely the same name if you wish – perfect for those who are dissolving to change company structure types.
However, if you dissolved an insolvent firm, it is forbidden to use the same or similar name when starting a new one, unless you get explicit court permission for unique circumstances.
Generally speaking, though, if one company failed by being in debt to creditors, it might be best to make a new start with a new name.
What happens if a company doesn’t have a director?
If the director of a limited company has stepped down or passed away, a new director must be appointed by the shareholders.
If a firm doesn’t have any other shareholders and the director has passed away, the executor of the estate can appoint a new director, as long as the company’s articles allow it.
Companies House will eventually strike off a business that doesn’t have a director – but this is a longer process than a voluntary strike-off and can make it much more difficult to manage or sell company assets before it’s dissolved.
Can a dissolved company be reinstated?
If we’re dealing with questions about dissolving a limited company, we should also address reinstating it.
So can it be done? Yes, but it’s not a simple process and involves costs and takes time. Only three reasons are accepted for reinstating a company. One is that the owner or owners wish to start trading again.
The second is that a director or shareholder wants to get assets from the company that weren’t paid out before the dissolution. These assets will have gone to the Crown in a process called Bona Vacantia.
Finally, creditors can also apply to have a company reinstated to get the money they are owned.
There are two ways to apply for a dissolved company to be restored: by court order or via administrative restoration.
Administrative restoration
Only directors/shareholders can apply for this and only if their company was struck off involuntarily by Companies House for failure to comply to regulations. So for example, if your company fails to file their annual accounts or confirmation statement, it can be removed from the register.
The dissolution can’t have happened any longer than six years ago and the company must have been actively trading at the time it was struck off.
The application costs £468, and you also have to send the missing documents and pay a penalty for late filing. If successful, your company gets reinstated, but the fact it was struck off will stay in the public domain.
Restoration through a court order
This can be applied for by anyone who has an interest in the company, such as directors/shareholders, creditors or former employees, and for any type of closure.
For example, a company director could go down this route if they voluntarily struck off their business but then decide that there is still potential, so they want to continue trading.
Like with an application for administrative restoration, you have to apply no later than six years after the date it was dissolved.
You need to send a completed N208 form, the court payment of £308 and a witness statement to the county court dealing with bankruptcies that is nearest to the company’s business address. This is for companies in England and Wales.
For Scotland and Northern Irleand the application needs to be sent to different authorities.
Like most court proceedings it will take a while, on average around four months.
As you can see, while it is possible to reinstate a dissolved company, it’s costly and takes time and effort. So we would recommend that you make sure that dissolving your limited company is what you really want to do.
Are there any alternatives to dissolving a limited company?
Yes. If you don’t want to dissolve the company but want to stop trading, you can let it become dormant. To do this, the firm must not be carrying out any business activity, be actively trading, or receiving income.
Dormant companies are still registered at Companies House but are listed as dormant. You can keep it dormant for as long as you want, but you must continue to send your annual accounts and confirmation statement each year.
Then, when you want to, you can either fully dissolve the company or resume trading.
If you want more information about running a company, these might be useful:
- The Top 5 Reasons To Change Your Limited Company Name
- Extracting Profit From Your Limited Company
- Reducing Your Tax Bill: 25 Allowable Expenses For Limited Companies
- Discover All About Company Pension Contributions For Directors In The UK
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