How do I Dissolve a Company?

If you’ve recognised that your business is struggling, not only might you be wondering “how do I dissolve a company?”, but you may also be considering whether dissolution is the right option at all.

Dissolving a company that you’ve spent years to build can be a big decision, and as such, it’s often best to enlist the help of business recovery and dissolution experts to help you weigh up what’s best for your particular situation.

Even if you’re certain that dissolution is the best move for your business, there are still a few things to remember before you can truly hang that ‘closed’ sign up for good.

Take the following steps into consideration, and you can potentially have your dissolution wrapped up in around three months.

 

How do I dissolve a company?

Why dissolve a company?

Those looking to dissolve a company may not necessarily be doing so through lack of success. Certain companies are only viable for a certain timeframe, or it may be that you’re hoping to retire but have nobody suitable to pass your business over to.

 

What are the criteria for dissolving a company?

While it’s strongly recommended to check with a business dissolution specialist before applying to have your business dissolved, there are a few guidelines you can check that your business corresponds with.

A company can only be dissolved if the following conditions apply:

• The company has not traded for three months. This must be a genuine cessation of trade
• The creditors are contacted and are given three months to consider the application to dissolve the company and can object to the dissolution
• The company has not changed its name in this period

If you are thinking of dissolving your company, you can take our quick on-line test to see if it qualifies.

 

Who is responsible for dissolving a company?

All owners of a company need to be in agreement about closing before the dissolution process can start. This includes members of limited liability companies, and shareholders of corporations.

It sounds like an obvious step to take, but with many businesses operating under several owners, it’s worth checking that everybody is on board with the business closing before taking steps to dissolve.

Make sure that any dissolution process obtains the approval of all owners or shareholders beforehand. This can save a lot of time and help to avoid potential issues in the long run.

 

 

Identify your company’s financial situation

As you might expect, solvent businesses (those that can afford to pay their bills) have some easier options to explore than those that can’t pay their debts.

Solvent businesses can strike themselves off the Register of Companies, or start an MVL (members’ voluntary liquidation), whereas insolvent companies will need to either put their company into administration, arrange a CVL (creditors’ voluntary liquidation), or look into administrative dissolution.

 

Dissolving options for solvent companies

1) Voluntary strike off

One of the easiest ways to dissolve a company is to strike off your business from the Register of Companies. Solvent companies with less than £25,000 worth of profits may also find this the most economical method to use.

Once your DS01 form has been completed and filed by Companies House, any remaining profits are received as a dividend.

Be aware that any profit you receive will be taxable at CGT rates (capital gains tax). This is currently 10% for basic-rate taxpayers, and double that for anybody on a higher tier.

Those that receive profits of more than £25,000 will also have to factor in income tax too. This can sometimes make an MVL the cheaper option for those with larger profits left over.

 

2) Members’ voluntary liquidation (MVL)

In contrast to dissolution, in which using a specialist third party is advised, the MVL process legally requires a licensed insolvency practitioner to oversee matters. This is why it is best used if the assets are over £25,000.

Closing a company with over £25,000 using an MVL is generally the most tax efficient way, however it is always best to seek advice to make sure this is the case.

 

Dissolving options for insolvent companies

1) Administration

Here, a licensed insolvency practitioner acts as an administrator for your company.

They’ll take full control of the business, determining over the course of an eight-week period how best to proceed. They can arrange better repayment terms with your creditors to help you keep trading, oversee the sale of the business to another company, or decide to close up the business altogether.

This is often the best choice for businesses that have some scope for recovery. Each avenue for recovery is investigated thoroughly to ensure that a business is no longer viable before liquidation and closure.

 

2) Creditors’ voluntary liquidation (CVL)

Similar to an MVL, a liquidator will use any assets or available funds to pay off debts pro-rata instead. This is often the best option for businesses with saleable assets and usually the first closure option which needs to be explored.

Prices start from around £5,000+VAT, but there are ways in which to raise funds for this.

Read – Guide to the Limited Company Liquidation Process

 

3) Administrative dissolution

In certain circumstances, an administrative dissolution can be the best, and cheapest, course of action for struggling businesses.

This is a useful option for businesses with no assets to sell, or any other means to pay for a formal liquidation.

Many websites erroneously state that businesses with debts have no other dissolution options other than liquidation. Not only is this not the case, but we’ve also had extensive experience of being able to help countless insolvent companies to dissolve via this method over recent years.

 

How to dissolve a company – the steps you need to take

If you have decided that dissolving your company is the right option then just be aware that if your company has debts then the process is different and you need to follow another procedure.

Read – How to Close a Limited Company with Debts

Below are the steps you can follow to dissolve a company if it doesn’t have any debts.

 

Step 1 – work out cease trading date

To dissolve a limited company, you’ll first need to work out a date to cease trading and let everyone know (shareholders, creditors, and anyone with an interest in the company)

 

Step 2 – complete AA01 form

If the date you decide is not the same as your normal accounting date, you’ll need to fill out an AA01 form from Companies House. You need to sign it and send it to back to them (you’ll need to send a copy to HMRC too).

 

Step 3 – notify HMRC

Once the agreed ‘ceased trading’ date has passed, send a letter to HMRC to notify them that you’ve stopped trading and there is no further taxable income You’ll also need to let them know that final accounts will be sent in due course.

 

Step 4 – close schemes

If your company employs people or it’s registered with a CIS scheme, you’ll need to let HMRC know that both schemes should be closed as they’ll no longer be needed.

 

Step 5 – de-register VAT

If your company is registered for VAT, you’ll need to de-register by filling out VAT form 7, and then preparing a final VAT return.

 

Step 6 – register with HMRC as sole trader if needed

If you are planning to trade afterwards as a sole trader, you’ll need to register with HMRC as such. If you aren’t planning on being a sole trader or partnership and are retiring or going back to employment, you need to tell HMRC that no further tax returns will be needed after your final one.

 

Step 7 – prepare final accounts

Get your final accounts prepared with your corporation tax return and submit them to HMRC and Companies House.

 

Step 8 – wait three months

Wait for three months after the closing date and apply for your company to be dissolved (struck off the register) by completing form DS01. You can do this online here

 

Step 9 – dissolution published

Companies House will publish these details in the London Gazette and will then dissolve your company after a further three months (if there are no objections).

 

Dissolving a limited company frequently asked questions

I have compiled this list of FAQs based on the questions that I have received from clients and website visitors over the years. I hope that you will find this information helpful.

 

How do I dissolve a company with debts?

If your company has debts, or is trading whilst insolvent, remember the steps above might not apply.

Whilst you can still close a limited company with debts using dissolution, there are further steps that need to be taken or you can risk fines or imprisonment.

If your company has any outstanding debt, you may find this article on closing a company with debts more useful.

What happens to a company’s assets if it is dissolved?

When striking off a company, business owners will need to ensure that all assets attributed to the company are transferred elsewhere before the dissolution is complete. If not, any assets remaining are automatically passed on to the Crown once dissolved.

 

What happens to debts when a company is dissolved?

Existing liabilities and debts will need to be handled before starting the dissolution process. HMRC and any creditors will also have to be made aware of your intention to strike your business off the register.

If you’re unable to pay the debts your business has accrued, you may need to look at alternative means of closing your company by speaking to an insolvency practitioner that can help you to liquidate instead.

It’s a good idea to try to reduce any share capital before starting the dissolving process too. Capital contributions made by any shareholders will be due back to them once the company has wound up.

 

Do I need to tell HMRC if I dissolve my business?

Yes. Make sure to settle any tax and VAT returns beforehand though. Once that is done, you can send written notice to HMRC of your intention to dissolve your business.

After you’ve then distributed any surplus assets and funds, the DS01 application can be sent over too.

 

How long does it take to dissolve a company (in UK)?

While it’s possible to have the whole process wrapped up within three months, there are a few factors that can alter the timeframe expected to dissolve a company.

You’ll need to ensure that anybody concerned with the business is notified of your application to dissolve within seven days of applying. This includes directors, creditors, shareholders, and any employees your business may have.

Once Companies House receives your application, they will publish your intention to dissolve in The Gazette, a journal that acts as an official public record.

This gives other parties, such as creditors, opportunity to object to the dissolution of your company. This is one of the main reasons that the dissolution process can be held up.

If there are no objections to the dissolution within two months of the notice’s publication, then Companies House can formally strike your business from their register. The following confirmation notice published in The Gazette then marks the official closing of your company.

 

Who can object to a company being struck off (dissolved)?

You can accrue an objection from anybody associated with your business. Generally, objections are made by anybody that believes they won’t receive money owed to them if you close your business.

This could be an outstanding bill for a creditor, HMRC, or even an employee worried that they won’t be given their wages. Shareholders that don’t agree with the closure, or haven’t been told about it, can also object.

 

Can you be sued after dissolving a company?

It is possible for someone to sue a dissolved limited liability company for a period after the business has been struck off the register.

This is why it’s important to use the services of a dissolution specialist to ensure that everything has been wound up and dissolved properly, tying up any loose ends along the way.

 

Can a company still operate if dissolved?

No. Once your company has been struck off the register at Companies House, it legally ceases to exist. Continuing to trade as a dissolved company will see you face serious legal action.

 

Is it worth making a company dormant?

If you or any other owners of your business are still unsure about dissolution, making your company dormant might be a better idea.

This is also a good solution for those struggling with illness or any temporary problem that might make running a successful business difficult in the short-to-mid-term. This option is only available to solvent companies.

 

How can I dissolve a company in the UK? – Get expert advice to guide you

With businesses involving so many people and moving parts, your best course of action is almost always to check in with a specialist beforehand.

Here at Forbes Burton, our in-house business experts can talk through your situation with you to deliver tailored advice.

We can walk you through the most beneficial way to close down your company, or even provide a strategy that helps you to avoid closure altogether.

A misstep at this critical stage can be costly for business owners, so get in touch on 0800 975 0380 or arrange a free meeting with one of our advisers to discover your best course of action.