We’d love to always focus on the happy and inspiring side of starting a new business. But in giving the best, practical advice, we have to cover what happens when it’s time for a business to end.
In the UK, annual rates of dissolving businesses are 11% – nearly as high as how many new businesses are formed every year (13%).
There are many reasons that a business needs to be dissolved, one of them being the sad truth that it just might not have worked out. Almost 1 in 5 businesses fail in the UK each year, and this time you might have been on the unlucky end of that statistic.
Whatever the reason may be, if it’s time to put an end to your business, we’ve got you covered in this step-by-step guide on how to dissolve a limited company.
Why dissolve a limited company?
There are multiple reasons that a limited company should be dissolved, including:
- You want to retire or give up the company, without wanting to sell or pass it on to another director;
- You can’t find a suitable buyer for the business;
- You want to run the business under a different legal structure, such as a partnership or sole tradership;
- You want to move on to a new business or venture;
- Your business is no longer profitable or in demand.
Once dissolved, your company will no longer exist. If you want to move on, but have the company still exist, you might want to consider selling your shares instead.
If you’re not 100% sure about the decision, you can always register your company as dormant and stop trading until you make the final call.
Best Company Dissolution Service – 1st Formations
If you prefer to pay a small fee to have someone else take care of all the technical and legal processes of your company dissolution, you may want to opt for a company dissolution service.
We recommend the 1st Formations company dissolution package as it takes care of all the legal paperwork for you, requiring very little input from the company directors.
After paying the one-off fixed fee of £69.99, 1st Formations will send you some paperwork you need to keep, and some paperwork that each director will need to sign (this can be done electronically).
That’s it! Once you’ve done that, everything will be submitted to the Companies House for you (you won’t even have to pay the Companies House filing fee). You’ll receive a confirmation once it’s completed.
You’ll still need to ‘shut up shop’ yourself by closing down your payroll, bank accounts, etc. beforehand – but the legal act of dissolving your company is taken care of by a team of experts.
Click here to check out the 1st Formations company dissolution service
How to dissolve a limited company
Once you’re set on the decision, and you’ve decided to handle the process yourself, it’s time to look at your options for dissolving your limited company.
Take time to explore which ones will give you the best tax breaks and profits depending on the unique circumstances of your business.
Step 1: is your company solvent or insolvent?
The first step when looking at how to dissolve a limited company is to assess whether your business is solvent or insolvent, as this greatly impacts what options you can take.
- Solvent companies are businesses that can pay their bills.
- Insolvent companies are businesses that currently can’t pay their bills.
If your business is solvent, you can either apply to get the company struck off the Register of Companies or start a member’s voluntary liquidation (MVL). Both of these options have their unique pros and cons, which we’ll cover in more detail below.
If your business is insolvent, there is a different set of actions that you must choose from. Skip straight ahead to the ‘How to dissolve an insolvent limited company’ section to find out more.
Step 2: Choose your dissolving option
For a solvent company, you can voluntarily strike off your company from the register or start a member’s voluntary liquidation (MVL). Typically speaking, getting your company voluntarily struck off the register is the cheapest and easiest option to go for, as it only involves filling out a form and taking any retained profits as a dividend.
All profits that you make will be subject to capital gains tax (CGT), which is 10% for basic rate taxpayers and 20% for those on a higher band. If the profits from your company are more than £25,000, they will also be subject to income tax – which could make the whole thing quite costly.
On the other hand, an MVL may be a better value option from a tax perspective if your profits are more than £25,000. This is when a company is closed down, with all remaining assets distributed to shareholders as cash. These profits are only subject to capital gain tax, which could be lowered to 10% if you qualify for an entrepreneur’s relief.
If you choose to do an MVL, you must appoint and pay for a licensed insolvency practitioner to manage the process. This process can also take up to 12 months to complete, so if you need the profits sooner rather than later, you might want to consider a voluntary strike-off instead.
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Step 3: Stop trading & complete your admin
Before you can apply for a voluntary strike off your company, you need to be inactive for at least 3 months. That means you need to have fully stopped trading and only complete activities such as settling debts or disposing of assets.
Basically, these three months give you plenty of time to wrap up shop and take away any remaining profits from your company before the official notice goes up that you’re no longer in business.
You must pay close attention to what’s needed here, as any profits left in your company as soon as you submit the DS01 form will legally belong to the crown, and you won’t be able to get them back.
To help you out, here’s a 10-step checklist of the important admin tasks that you must complete.
- If you have any employees, you must either make them redundant or ensure that their final wage has been paid. If you need more advice on making staff redundant, we’d recommend getting legal advice to ensure you follow the correct protocol.
- You’ll also need to close payroll.
- Complete any outstanding work and any due fees – making sure you don’t accept any new contracts. This is just to complete anything you have outstanding.
- Sell any company assets and distribute the profits among your shareholders as dividends.
- Make sure any utility bills and contracts are ended and paid up.
- Transfer website domains and ensure that any online order systems are taken down.
- Prepare final company accounts and tax returns and send them to HMRC and Companies House. During this, you must also send a letter signed by the directors, informing them that you wish to close the company.
- Ensure that any due tax, including VAT, Corporation Tax, PAYE, or NI is paid.
- Deregister your company for VAT, if you are registered.
- Close all your company bank accounts.
It might seem like a lot, but this stage is all about shutting up shop and making sure that everything is paid up and emptied. Think of it like moving house – you need to move out all your belongings, shut off your utilities and make sure that all your information is accurate.
Once done and three months of no trading have passed, you can then complete the final step: submitting your DS01 form.
Don’t forget! 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.
Step 4: Submit your DS01 form
Now it’s time for the official closing down step for your company, by completing a DS01 form to Companies House. This form is a quick one to complete, only requiring:
- Company registration number;
- Company name;
- Signatures of the company’s officers authorising the Strike-Off.
This form does come with a small fee, costing £10 to complete, or £8 when submitted directly on the Companies House website. When paying this fee, make sure that you pay it out of your own personal bank account, as using a company’s bank account still technically counts as trading.
Once submitted, Companies House will get the information, send a postal confirmation and publish a notice in the London, Edinburgh, or Belfast Gazette (depending on where your business is based). If no one objects to the strike-off after three months, your company will be officially dissolved.
How to dissolve an insolvent limited company
If your business is insolvent, (i.e. can’t pay its bills), you need to take one of the following actions to dissolve your company:
- Put your company into administration;
- Arrange creditors’ voluntary liquidation (CVL).
Going into administration protects your company from any legal action by those who are owed money (your creditors) and stops anybody from applying to wind up your company using the process. During this, you will appoint an administrator, (who must be a professional ‘insolvency practitioner’) that will get full control of your company and its assets. Then, within the next 8 weeks, your administrator must write a statement explaining what they plan to do with the company, including:
- Negotiate a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period, so your business can keep trading;
- Sell your business as a ‘going concern’ to another company;
- Sell your assets as part of a creditors’ voluntary liquidation and pay your creditors from any money raised and close your company.
If there’s nothing to sell, an administrator can also choose to close your company.
A Creditors Voluntary Liquidation (CVL) is similar to a member’s voluntary liquidation (MVL), where all remaining assets are turned into cash values. However, this time, all the money is used to repay creditors on a pro-rata basis. To perform this action, you need to have a vote at a shareholders’ meeting, where at least 75% must vote for the CVL. If it passes, you can appoint your insolvency practitioner and begin the process.
If it doesn’t pass the vote, your creditors may be able to force you into a compulsory liquidation to recover their money.
How long does it take to dissolve a limited company?
The answer to this question depends on if your company is solvent or insolvent, and which method you use. If your company is solvent and you choose to strike off your company 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 company 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.
Can I start a new company after I’ve dissolved a limited company?
Yes, you can start a new company whenever you want. If the company that you dissolved was solvent, you could also start a new company 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 company, it is forbidden to use the same or similar name when starting a new company, unless you get explicit court permission from 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 company 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.
The Companies House will eventually strike off a company 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.
Are there any alternatives to dissolving a limited company?
Yes. If you don’t want to dissolve a company but want to stop trading, you can let the company become dormant. To do this, the company 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 a company 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.
Get the best help dissolving your limited company
Dissolving a limited company can get confusing pretty quickly with the number of options and steps that you must take. Our golden piece of advice is that you must always get a second opinion from your accountant and/or additional legal advice to ensure that you’re taking the best path for your business.
To make the process even quicker, you can also use company dissolution services to handle all of the details for you.
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