If you are a director looking to close your limited company, you might instantly think to dissolve it. While dissolving a company is not the only way to close it, a dissolution is one of the most common ways to do so and is the option many default to. However, depending on your circumstances, dissolution might not be the best course of action for the company, and attempting to dissolve a company with outstanding liabilities can lead to serious consequences.
Other things can stop a company dissolution, and you should consider them before applying.
How Do I Dissolve a Limited Company?
You can dissolve a company by applying to strike it off the register of companies at Companies House. You can do this by downloading and filling in a DS01 form. All, or a majority of the company’s directors will need to sign the form. Additionally, all notifiable parties (employees, shareholders, creditors etc.) must receive a copy.
You can apply to strike off by post, which costs £10. Alternatively, you can fill it in online for £8. Regardless of which way you choose to proceed, the money should not come from a bank account associated with the company you plan to strike off.
Once the strike-off application is accepted, it appears in the local Gazette (London for England & Wales, Edinburgh for Scotland, and Belfast for Northern Ireland). From that date, interested parties have three months to object. Afterwards, a second and final notice confirms the dissolution, bringing the company to a close.
What Is the Difference Between a Strike-Off and a Liquidation?
Dissolving might be your first thought when closing your company, but liquidation could be a better option depending on your circumstances.
While you can dissolve the company yourself, liquidation is a more formal process carried out by a licensed insolvency practitioner. For insolvent companies, a voluntary liquidation is the only way they can close without the creditors applying to wind it up through compulsory liquidation.
If you want to close your company, and it is insolvent, you should do so via a “Creditors Voluntary Liquidation” (CVL). Overseen by a licensed insolvency practitioner, this process closes the company in an orderly, structured manner, stopping all creditor pressure for the duration. Once the liquidation concludes, the company closes, and if you have fulfilled your duties as director, you can move on and start again.
Your company does not have to be insolvent to undergo liquidation. A solvent liquidation or “Members Voluntary Liquidation” (MVL) can close a company with enough assets to repay its liabilities. This process is used if your company has no future purpose, or you and the other directors wish to retire and claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).
Can Anything Stop a Company Dissolution?
Before you strike off the company, you should ensure the following is done in due diligence:
- Complete all outstanding work and collect the associated monies.
- Settle all the company’s outstanding liabilities.
- Close all the company’s bank accounts.
- Pay all staff their final wages and any other monies due, and then make them redundant.
- The company should complete a final set of accounts and submit a tax return to HMRC, making it clear those accounts are final.
- Ensure any tax owed to HMRC is paid in full, have the tax office strike off the company’s payroll, and deregister for VAT.
- Cancel all company utilities and subscriptions, including power, water, internet, and website services.
- Sell the company’s assets, and then distribute the proceeds to its shareholders. Any cash or assets left after the strike off become property of the Crown.
If you have not fulfilled your duties as director, and the criteria listed above are not met, your creditors could stop the dissolution. They could even accuse you of filing a dishonest application.
What Can Happen If I am Accused of Making a Dishonest Application?
Even if your dissolution application goes through, if new evidence becomes known after the strike-off appears in the Gazette, the company’s creditors and other interested parties could object to the strike-off. They could even have the company restored to fulfill its obligations.
Making a dishonest strike-off application can have severe repercussions. There could be an investigation into your conduct as director. Punishments can range from fines, to being held personally liable for the outstanding debts, and even a directors’ ban.
To Summarize
You may want to dissolve your limited company if you feel it has no future, or you just do not want to run it anymore. You can apply to have the company struck off the register at Companies House, and if the application is successful, the company ceases to exist. However, if you have not fulfilled your duties as director or have submitted a dishonest application, your creditors could stop a company’s dissolution so it can fulfil its obligations, potentially leading to severe consequences for you, personally. You cannot dissolve an insolvent company, and if you find your company is unable to repay its liabilities, you should close it via a Creditors Voluntary Liquidation (CVL); a process managed by a licensed insolvency practitioner.
