How to Dissolve a Limited Company
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There are many different reasons why company directors decide to close their limited companies voluntarily. It could be that the business hasn’t turned out to be as profitable as it was hoped, it’s part of a group of companies that is being restructured or that it’s simply time to call it a day.
Whatever the reason for wanting to close the business, the simplest and most cost-effective way to do so is through a voluntary company dissolution. This is the process or removing a solvent company from the Companies House Register so it no longer exists.
In this guide, we explain how you can dissolve a limited company and discuss when it is and is not a suitable way to bring an end to your business.
What does dissolving a company mean?
Dissolving a company, also known as ‘dissolution’ or ‘striking off’, is the process of removing the official registered name of your limited company from the Companies House Register. Once the business’s name has been removed from the register, the company will cease to legally exist.
Dissolution is often confused with another method of closing a business – liquidation. However, the two processes are very different in terms of how they are administered, when they can be used and how much they cost.
Dissolution can only be used to close a business that has no debts, or it has debts that can be settled in full. Liquidation is the method used to close a company that has severe debts it cannot afford to pay, or it has significant assets to realise before the company is closed down.
When can a limited company be dissolved?
The process of voluntary dissolution can only be used to close down a limited company if certain conditions apply. That includes:
- The company is solvent and can settle all its liabilities and outstanding debts in full within 12 months
- The company hasn’t traded for at least three months
- The company hasn’t changed its name in the last three months
- There are no proposed or ongoing legal proceedings against the company
- The company has not sold any property or rights owned by the business in the last three months
You can see the full conditions for voluntarily striking off a company in Sections 1004/1005 of the Companies Act 2006.
What are the steps you need to take before dissolving a limited company?
To start the dissolution process, you will need to complete the Striking Off Application Form DS01. However, before you can do that, there are a number of steps you should take to prepare your business.
Step 1: Cease trading
The company cannot be dissolved if you have traded at any point in the last three months. Once you have determined a date to cease trading, you must complete all outstanding work and collect any payments due.
Step 2: Inform relevant parties
You must inform anyone with an interest in your business (employees, creditors, shareholders, clients, etc.) of your decision to dissolve the company.
Step 3: Make staff redundant
One of the most difficult parts of the process for active companies is making the employees of the business redundant. You should pay employees their final wage along with any money they are owed for holiday entitlement and redundancy pay etc.
Step 4: Sell company assets and stock
You must realise any assets and inventory owned by the business and distribute the proceeds among the shareholders or use it to pay off outstanding debts. Any assets left in the business will become the property of the Crown once it has been dissolved.
Step 5: Prepare your final accounts
Prepare your final accounts and your Corporation Tax return and submit them to Companies House and HMRC respectively. You should clearly state that these are your final accounts.
Step 6: Settle any tax liabilities
Pay any outstanding PAYE, National Insurance and Corporation Tax and ensure any late filing or payment penalties you have received have been settled with HMRC.
Step 7: Deregister from company taxes
If your company is registered for VAT, you should deregister by filling out VAT Form 7, prepare a final VAT return and pay any money due. You should also ask HMRC to close down the company’s payroll scheme.
Step 8: Terminate contracts and close company bank accounts
The final step to prepare for company dissolution is to bring monthly services such as utilities to an end, transfer website domain names and close the company’s bank accounts.
How do you dissolve your limited company?
Now the company is properly prepared for dissolution, you can take the final steps to bring your business to an end. To complete the dissolution process, you must complete the Striking Off Application Form DS01. You can download the form from the Companies House website here. You should send the completed form along with a cheque for £10 to the appropriate Companies House office:
- English and Welsh companies – Companies House, Crown Way, Cardiff CF14 3UZ
- Scottish companies – Companies House 4th Floor Edinburgh Quay 2, 139 Fountainbridge, Edinburgh EH3 9FF
- Northern Irish companies – 2nd Floor The Linenhall, 32-38 Linenhall Street, Belfast BT2 8BG
You can also complete the form online and pay a reduced fee of £8. You will need all or a majority of the directors to sign the form (electronic signatures can be provided for online applications). A copy of the form must also be sent to all ‘notifiable parties’, including creditors, employees and shareholders.
If your company meets the relevant criteria and you have taken all the necessary steps, the application will be accepted and the striking off request will be published in the Gazette in London, Edinburgh or Belfast, depending on where your company is based.
Once the first notice has been published, interested parties will have three months to object to the dissolution. If no objections are made, a second and final notice will be published in the same Gazette confirming the dissolution of your company. From that point on, the business will officially cease to exist.
What happens if someone objects to the dissolution of your company?
Objections can be made to the proposed dissolution of your company by any interested party. That includes shareholders, creditors, employees, clients and even the company’s directors. All objections must be submitted in writing and be accompanied by supporting evidence. If an objection is upheld by the Registrar, the dissolution will not be allowed to go ahead.
Even if the company has already been dissolved, interested parties can apply to have it restored to the Companies House Register up to six years after the dissolution date and action can then be taken against you. That’s why it’s so important to make sure that everything has been properly taken care of and all debts have been settled before the process begins.
Do you need advice?
If you’re thinking of closing down a limited company but are unsure of the best approach to take, we can help. Our team of licensed insolvency practitioners will happily answer your questions and talk you through the available options, including dissolution and liquidation. Just get in touch for a free, no-obligation consultation today.