If you decide to close your business there are a number of obligations you’ll need to meet, including tax issues and responsibilities to employees and suppliers. It’s never an easy decision to close a business, so in order to make it as stress-free as it can be, we have compiled a checklist of records you will need to finalise and people you need to inform.
If the company is solvent
A company is considered solvent if the assets exceed the liabilities and creditors can be fully paid within 12 months of the debts falling due.
If the company is solvent, they can either strike off/dissolute the company or go for Members Voluntary Liquidation (MVL).
If the company is insolvent
A firm is considered Insolvent if it cannot afford to pay today’s liabilities when they fall due.
If the company is insolvent, it can go into Creditor Voluntary Liquidation (CVL). A director can choose the compulsory Liquidation, or your company might be forced to go into Liquidation.
Company dissolution is the most cost-efficient and straightforward method of closing a solvent company.
You can only apply for the dissolution if the company hasn’t.
- Dealt or sold off any stock in the last three months
- Changed names in the previous three months
- Threatened with Liquidation
- Be involved in any legal agreements with creditors
After that, the directors must follow strict guidelines before the closure. This includes paying all creditors fully, notifying HMRC, closing business bank accounts, and submitting final reports and confirmation statements.
Checklist for closing down your business
- Inform HMRC (inform HMRC about the closure and the reason)
- File the annual accounts and returns
- Pay tax liabilities – (Corporation tax, VAT, PAYE and NI)
- Close the payroll scheme
- Pay all the creditors, including loans and leases
- Consider redundancy payments
- Close your business bank accounts
- Cancel VAT registration
- Apportion assets among shareholders
- Apply for dissolution (you must send Companies House form DS01)
- Inform all parties connected to the company
Once you applied for the strike off, you’ll get a letter from Companies House to tell you whether you’ve completed the form correctly. Then, struck off will be produced as a notification in The Gazette.
If none of them objects, the company will be struck off the register once the two months mentioned in the notification has passed.
A second notification will be published in The Gazette – this will mean the company won’t legally exist anymore.
Members Voluntary Liquidation (MVL)
Members Voluntary Liquidation is the most tax-efficient way of closing a solvent company, and this is also known as solvent liquidation/winding up a company.
A director will go for Members’ Voluntary Liquidation when his company can pay its debts, but he wants to close it.
The firm will stop doing business and employing people when it’s going for MVL, and the company will not exist once it removed from the company register at Companies House.
The MVL will be valid for companies with a complex structure or where the value of the assets is likely to exceed £25,000 after creditors have been paid off.
Unlike the striking off, which is simple, the cost involved with MVL is higher because of the need to appoint a liquidator for the liquidation process, such as to realise the assets, pay any remaining liabilities and issue them to shareholders of the company.
Creditor Voluntary Liquidation (CVL)
The CVL process is used when directors voluntarily put a company in Liquidation, which is insolvent. In other words, A director can propose the CVL when the company cannot pay its debts, and enough shareholders agree to go into CVL.
If Liquidation seems unavoidable, the best approach is CVL. You must call a shareholders’ meeting and 75% (by the value of shares) of shareholders must agree to the CVL to process this and then you can appoint your insolvency practitioner.
Three steps to follow for CVL
- Appoint an authorised insolvency practitioner as liquidator
- Send the decision to Companies House within 15 days
- Advertise about the CVL in The Gazette within 14 days
If you don’t go for a CVL, creditors can force a compulsory liquidation to recover their money.
Compulsory Liquidation is a court-ordered Liquidation. For this, a director can ask a court to order the company to stop trading and be liquidated.
To go into this Liquidation, you need to show that the company cannot pay its debts of £750 or more and 75% (by the value of shares) of shareholders agree that the court can wind up the company.
If the court provides a winding-up order, the court will put an official beneficiary in charge of the Liquidation. They’ll do Liquidation for your company and send a copy of the winding-up order to the company’s registered office.
Forced into Liquidation
A creditor can take legal action against the company in the form of a winding-up petition. They do this to get their debts paid, and they can do this by getting a court judgment or making an official request for payment (statutory demand).
Once the creditor sends the petition – If the petition is accepted, the court will arrange a date for a hearing, and you must attend the hearing. Your creditors will announce on Gazette that when and where the hearing will take place.
Your firm can be put into the control of someone else until the hearing happens, and this is known as ”provisional Liquidation.
If the court manifests you cannot pay your debts, the court will issue a winding-up order, and then the procedure will be the same as we mentioned in Compulsory Liquidation.
Keeping the company dormant
Closing your company is not the only option you have; if your company is not trading, you can also keep your company dormant as long as you want.
In this case, you should ensure that the company is not carrying on business activities, not trading nor receiving any income.
Even if your company is dormant, you should still send your annual accounts and confirmation statement to Companies House as your company will still be registered at Companies House.