You may be thinking about closing your limited company because you are no longer making a profit. Perhaps you’ve been struggling to keep abreast of your accounts and have realised too late that you have a cash flow problem. Or maybe you’ve acquired faulty stock that you are unable to sell.
But there are many other reasons for closing a company that aren’t economical. You could have clashed with your business partner about how the company is run, for example. Maybe other commitments in your life need to take priority, or you’re suffering with health issues. Or it could be that your heart’s just not in it anymore.
Whatever the reason for closing your company, you may be confident that it is the right decision, but you’re unsure of how to go about doing so. If so, you’ve come to the right place.
This article outlines all the necessary steps you need to take to close a limited company, whether it is solvent or insolvent, dormant or has never traded. It also reveals how long it takes to close a limited company, as well as how much the process costs.
If you’ve decided it is the end for your business, you will need to ask Companies House to close it and strike it off the register. The process you will have to go through to do this will depend on whether or not your company is able to pay its bills.
Whatever type of company you have, there are some things you must do, though, such as paying your employees or making them redundant, ceasing trading, closing the company bank accounts and notifying HMRC in relation to payroll and taxes such as VAT.
To find out exactly how to go about closing your limited company, read on.
Things to do when closing any limited company
As explained above, there are certain things you need to do, no matter what type of limited company you have. Some of the most important ones are to:
- Cease trading
- Close all company bank accounts
- Contact HMRC in relation to payroll and to de-register for VAT and other taxes, such as Corporation Tax and Capital Gains Tax
- Identify whether your company is solvent or insolvent, as this will determine which process you need to take in order to close it (see the subsection below for more information on this)
- Pay employees or make them redundant
- Sell all company assets
- Settle the company accounts and pay any outstanding bills
- Tell creditors and suppliers that your company has ceased trading
- Terminate all utility contracts and inform the local council you pay Busines Rates to
How do I know if my company is solvent or insolvent?
Simply put, your business is solvent if it is able to pay its bills or insolvent if it is unable to pay its bills. This is called the cash flow test.
You can also determine whether your company is solvent or insolvent via:
- The balance sheet test — Does your company’s liabilities exceed its assets? If so, it is likely to be insolvent.
- The legal action test — Has any legal action of more than £750 been taken out against your company? If so, again, it is likely to be insolvent.
Closing a limited company that’s solvent: Step-by-step guide
If you have a limited company that’s solvent, you have two options when it comes to closing it. These are:
- Dissolution (striking off)
- Members’ Voluntary Liquidation (MVL)
The quickest and easiest option is dissolution (or strike-off), and it’s the only method that doesn’t require the involvement of an Insolvency Practitioner. However, you can only use this method if you meet certain criteria (outlined below).
If you wish to close your limited company in a more tax-efficient manner, the Members’ Voluntary Liquidation route is the best option.
Option 1: Closing a solvent company by Dissolution (striking off)
Provided your company meets the following criteria, you may be able to dissolve it:
- The company hasn’t traded in at least three months
- It has assets and no debts
- It has not changed its name in the last three months
- It has not made a disposal for value of property or rights
- It is not subject to any current or proposed legal proceedings
- The capital gain released is less than £25,000
Dissolution is only lawful if the company is solvent and has no debts. If you have outstanding debts to HMRC or another creditor, it is likely that they will raise a formal objection and Companies House will reject your application to dissolve.
Step 1: Complete Companies House Form DS01
Notify Companies House that you wish to have your Limited Company removed from their official register by filling out Companies House Form DS01, ensuring it is signed by the majority of directors.
Step 2: Pay a small fee
You will then need to then pay a fee of £8 if you are applying online, or £10 if you are making a paper application. This fee cannot be paid by the company itself.
Step 3: Notify all relevant parties
Send copies of the application to creditors, company directors, employees, shareholders, pension managers or trustees and any other notifiable party within seven days of submitting it.
If your application is approved by Companies House, it will display the information on the public register and — depending on the jurisdiction in which your company is registered — a notice will be advertised in The Gazette. This is to give third parties the opportunity to oppose the dissolution. If no objections are made within three months, your company will be struck off the register, it will cease to exist legally and any assets still held by the company will become the property of The Crown. Once this happens you will be unable to trade or carry out any business activities through the company.
Option 2: Closing a solvent company by Members’ Voluntary Liquidation (MVL)
If your company is solvent but it does not satisfy the conditions listed in the previous section, you will need to voluntarily liquidate it instead.
As mentioned above, this is the most tax-efficient way to close a limited company. This is because shareholders aren’t charged Income Tax or Capital Gains Tax.
Step 1: Sign a declaration of solvency
A declaration of solvency must be signed by 75 per cent of the company’s directors.
Step 2: Pass a resolution for voluntary closure
The company’s shareholders then pass a resolution for voluntary closure, and it is published in The Gazette within 14 days.
Step 3: Inform Companies House of the closure
You must inform Companies House of the closure within 15 days of the resolution being passed.
Step 4: Appoint an Insolvency Practitioner
You must also appoint an authorised Insolvency Practitioner as a liquidator to take control of the limited company and oversee its closure. Within two weeks of their appointment, they must submit Form LQ01 to Companies House.
Once the liquidation is complete, the Insolvency Practitioner will call a general meeting to announce a full progress report. This meeting will have been advertised in The Gazette at least one month before it is held. They will then send the report, along with a Return of Final Meeting, to Companies House within one week.
Closing a limited company that’s insolvent: Step-by-step guide
Your company is likely to be insolvent in one or more of the following cases:
- It has insufficient funds
- It has more liabilities than it has in assets
- It is facing pressure from creditors
If this is the case for your company, you will need to go down the Creditors’ Voluntary Liquidation route.
Closing an insolvent company by Creditors’ Voluntary Liquidation (CVL)
Step 1: Hold a general meeting of the shareholders
A company director should call a meeting of all shareholders, in which a special resolution is passed to initiate the closing process. This resolution must be agreed upon by 75 per cent of shareholders.
Step 2: Send the resolution to Companies House
The resolution must be sent to Companies House within 15 days of the meeting and also advertised in The Gazette.
Step 3: Appoint an Insolvency Practitioner
You need to appoint an authorised Insolvency Practitioner as a liquidator to take control of the limited company and oversee its liquidation.
Step 4: Hold a creditors’ meeting
You should also hold a creditors’ meeting within 14 days of passing the resolution, in which you present a Statement of Affairs (this is a summary of the company’s assets and liabilities) and give a copy to the liquidator afterwards. You must give creditors at least seven days’ notice of this meeting, and, again, it needs to be advertised in The Gazette.
Once all assets are converted into cash and paid to creditors in order of priority, the liquidation process will be complete and the limited company will be struck off the register after a final meeting held by the liquidator.
Closing a limited company that’s dormant or has never traded
Closing a limited company that has never traded or is dormant should be relatively easy using the dissolution method. A dormant limited company is one that has not carried out business activities or received income for a period of time.
How quickly can you close a limited company?
Providing there are no issues, it takes around three months to dissolve a limited company from the date the closure notice was published in The Gazette. However, the length of time can vary depending on the situation's complexity. The process is likely to take considerably longer if you are going down the MVL or CVL route (especially if there are assets to dispose of).
Does it cost to shut down a limited company?
You will always incur some costs, no matter which process you use to close your limited company. As well as paying off any outstanding debts and employee wages, there are various administrative costs to consider when closing a limited company, including the fee for advertising in The Gazette.
The cheapest way to close a limited company is to dissolve it, but remember you can only do it this way if the company is solvent and has no debts. Dissolution requires you to submit a DS01 form to Companies House, which comes with a filing fee of just £10.
All other options require the involvement of Insolvency Practitioners, whose fees are usually upwards of £5,000. If you are going down the MVL route, you can expect to pay a liquidator’s fee of upwards of £1,500 plus VAT, while the liquidator’s fee for the CVL route is more like £3,000 to £7,000.
Can I close a limited company and start a new one?
As long as all the requirements of Companies House are adhered to, you are allowed to start a new business after closing an old one.
You won’t be able to use the same company name or structure as the liquidated one, though, as this is considered “phoenixing” — a process that’s prohibited by Section 216 of the Insolvency Act.
Can I re-open a previously dissolved limited company?
You may be able to reopen a previously dissolved limited company by Administrative Restoration (unless it was struck off voluntarily) or by applying for a court order. However, it is recommended that you seek independent legal advice before doing so.
Summary
To close a limited company, you will need to ask Companies House to close it and strike it off the register. The process you will have to go through to do this depends on whether your company can pay its bills.
To close a solvent limited company by Dissolution (striking off), you must:
- Complete Companies House Form DS01
- Pay a small fee
- Notify all relevant parties
To close a solvent limited company by Members’ Voluntary Liquidation (MVL), you must:
- Sign a declaration of solvency
- Pass a resolution for voluntary closure
- Inform Companies House of the closure
- Appoint an Insolvency Practitioner
To close an insolvent limited company by Creditors’ Voluntary Liquidation (CVL), you must:
- Hold a general meeting of the shareholders
- Send the resolution to Companies House
- Appoint an Insolvency Practitioner
- Hold a creditors’ meeting
Whatever type of company you have, there are some other things you must do, the most important of which are to:
- Cease trading
- Close all company bank accounts
- Contact HMRC in relation to payroll and to de-register for VAT and other taxes, such as Corporation Tax and Capital Gains Tax
- Identify whether your company is solvent or insolvent, as this will determine which process you need to take in order to close it
- Pay employees or make them redundant
- Sell all company assets
- Settle the company accounts and pay any outstanding bills
- Tell creditors and suppliers that your company has ceased trading
- Terminate all utility contracts and inform the local council you pay Busines Rates to