What is the Meaning of a Dissolved Company?

There are many financial terms which fly at you when a business is being closed.

Talking of dissolving a company often crops up but what does this mean?

Simply put, a dissolved company is a business entity that is no longer registered with Companies House.

Dissolution can occur for various reasons. This could be bankruptcy, failure to file required documents or a decision by the owners to close the business.

Dissolved companies are no longer registered

Once a company is dissolved, it no longer exists as a legal entity and cannot conduct business or enter into contracts.

Dissolution may also trigger a number of certain legal obligations, such as the distribution of remaining assets to creditors or shareholders. It also might involve the filing of final tax returns.

A dissolved company may still be subject to legal claims or obligations, such as lawsuits or outstanding debts.

It is important to properly dissolve a company and fulfil all legal obligations. This will mean that you avoid potential liabilities and legal consequences in the future.

So how do you go about dissolving a limited company?

The way you dissolve the company depends on whether it can pay its bills or not.

Dissolving a solvent limited company

If a company can pay its bills, it is termed as being solvent.

In essence, you can either:

• Apply to simply get the company struck off the Register of Companies
• Start a Members’ Voluntary Liquidation (MVL)

If the asset value isn’t very high Striking off a company is usually the most cost-effective method of closing it. If the assets exceed £25,000 then an MVL would likely be the best route although there are tax implications which it may be best to discuss with an accountant.

Dissolving an insolvent limited company

However, if a company cannot pay its bills, it is termed as insolvent.

If a company finds itself insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

How you close your company entirely depends on your circumstances. You can:

• Place your company into Administration
• Arrange Creditors’ Voluntary Liquidation
• Explore the possibility of keeping your company open using a Company Voluntary Arrangement
• As an act of last resort, you can use Administrative Dissolution to close a company if there are no assets or funds to pay for other options

You should get professional advice from an insolvency specialist if you’re not sure which option is suitable for your company.

Read – How to Dissolve a Limited Company

What about compulsory liquidation?

Your company might be forced into compulsory liquidation if you don’t pay creditors, however you may be able to avoid liquidation by applying for a Company Voluntary Arrangement if any of these criteria are met:

• The company must be insolvent (can’t pay it’s debts as and when they fall due)
• Projected cash flow forecasts must show that the company will be able to pay the agreed amounts of repayment to creditors
• The directors must be confident that the business has a viable future and a good prospect of recovery

Can I let the company become dormant?

Contrary to popular belief, you don’t have to necessarily close your company if it’s no longer trading. You can let it become ‘dormant’ for tax as long as it is not:

• Carrying on any type of business activity
• Trading or open for business
• Receiving income of any kind

Thinking of dissolving your company?

Still seeking more answers or need to know if you can use dissolution to close your company?

Then why not get in touch with us for more information or a no-obligation consultation? Call us on 0800 975 0380 or [email protected]