There may come a time when you need to close down a limited company and this Quick Guide sets out the steps you will need to take in order to do this.
To close a company you usually need to have the agreement of your company’s directors and shareholders.
The way in which you close the company is dependent upon whether the company is solvent or insolvent.
If the company is solvent there are two options as to how the company can be closed:
You can get the company struck off the Companies House register but only if the company:
If your company does not meet these conditions, you will have to voluntarily liquidate your company instead.
Before applying to strike off your limited company, you must close it down legally. This involves:
You will have to fill in an application to strike off and send a copy within 7 days to anyone who could be affected. This includes:
To apply to strike off your limited company, you must send Companies House form DS01 signed by a majority of the company’s directors. It costs £10 to strike off a company and payment cannot come from an account that belongs to the company you are striking off.
You should deal with any of the assets of the company before applying, e.g, close any bank accounts and transfer any domain names.
Companies House will inform you by letter if you have filled in the form correctly and whether your request for the company to be struck off will be published as a notice in your local Gazette.
If nobody objects, the company will be struck off the register upon expiration of the period set out in the abovementioned notice and a second notice will be published in the Gazette. At this stage the company will be formally dissolved.
If your company employs staff, you must:
You should make sure that any business assets are shared among the shareholders before the company is struck off. Anything that is left will go to the Crown and to get anything back you will have to restore the company.
You must send final statutory accounts and a Company Tax Return to HMRC. Although you do not have to file final accounts with Companies House you must:
If you’ve made a loss in your final year of trading, you might be able to offset the tax against profits from previous years - this is known as ‘terminal loss relief’. You can claim this on your final tax return.
If you take assets out of the company before it is struck off, you might have to pay Capital Gains Tax on the amount.
Entrepreneurs’ Relief may be available but this will work out on your personal Self-Assessment Tax Return. If the amount is worth more than £25,000, it will be treated as income and you’ll have to pay Income Tax on it.
You must keep business documents for 7 years after the company is struck off, e.g. bank statements, invoices and receipts. If the company employed people, you must keep copies of its employers’ liability insurance policy and schedule for 40 years from the date the company was dissolved.
You can withdraw your application if your company is no longer eligible to be struck off (e.g. trading or insolvent) or you change your mind provided the company is still on the Companies Register. Only one director is required to sign the withdrawal form.
You can choose to liquidate your limited company (also called ‘winding up’ a company). The company will stop doing business and employing people.
Although Members’ Voluntary Liquidation is more cumbersome, the advantage of this process is that a liquidator is formally appointed and notices are given that the company is closing. Any creditors or persons with claims against the company then have a period of time in which to come forward before the company is liquidated and state their claim. Once liquidation is complete there is very limited possibility of any claim being made by any creditors or other persons against the former directors of the company.
When the liquidator is appointed, he takes control of the company and the responsibilities of the directors will change.
There is only one voluntary option to wind down an insolvent company and that is the creditors’ voluntary liquidation.
A Director Can Propose a Creditors’ Voluntary Liquidation If:
The directors will need to obtain shareholders’ consent in order to liquidate the company. To do this the directors must call a meeting of shareholders in which 75% (by value of shares) of shareholders must agree to the winding-up and pass a ‘winding-up resolution’. Once the resolution is made there are 3 steps that must be follow by the directors:
The director must deliver two notices to creditors to seek their decision on the nomination of a liquidator and seek their decision on the establishment of a liquidating committee and in order to do these at the same time a decision procedure such as the following should be used:
Directors must notify the creditors about the decision procedure date not earlier than 7 business days after the notice has been delivered and a maximum of 14 days after the Resolution to Wind Up has been passed.
A physical meeting will be held if 10% in value of all creditors’ claims, a collective group of 10 creditors or 10% of total number of creditors request a meeting within 5 business days of the notice being sent. Through the decision procedure or, if a meeting is held, creditors may:
Directors must present a Statement of Affairs no later than 3 business days before the decision date which details the company situation including assets and liabilities. This must be provided to the liquidator to forward to Companies House.
The third option would be to keep the company open as a dormant vehicle. You can notify HM Revenue & Customs that the company has ceased to trade and close the PAYE scheme and then you just keep the company and submit dormant accounts each year and an annual return form. This option is potentially attractive if there is any chance that activities may be resumed in the future, but obviously it does have an ongoing cost associated with it.
To make your company dormant, ensure that all clients and any agents doing business on its behalf are aware that you are ceasing trading and any agreements or contracts are to be terminated.
You will need to prepare final accounts and ensure that your corporation tax is paid in full. You must empty and close any interest-generating bank accounts – if a dormant company undertakes even a single transaction, for example an interest payment or bank charge, you will become liable for a full set of trading accounts and corporation tax for the relevant period. You must also close your payroll and notify your accountant that trading has ceased.
You must cancel your registration if the company stops trading or when a company is closed.
You must cancel within 30 days if you stop being eligible or you may be charged a penalty.
It usually takes 3 weeks for HMRC to confirm your de-registration and the official de-registration date. This is either the date when the reason for your cancellation took effect (eg when you stopped trading), or the date you asked to de-register if it’s voluntary.
HMRC will send confirmation to your VAT online account (or through the post if you don’t apply online). From the date of de-registration you must stop charging VAT and keep your VAT records for 6 years.
You’ll have to submit a final VAT Return for the period up to and including the de-registration date. You must account for any stock and other assets you have on this date if:
Don’t wait until you’ve received all your invoices before submitting your final return. You’ll still be able to reclaim VAT on anything you bought for your business while still registered once you get the invoices.
The Insolvency (England and Wales) Rules 2016
New modernised and consolidated insolvency rules have been laid in Parliament and will come into force on 6 April 2017. The new rules replace the Insolvency Rules 1986 and their 28 subsequent amendments. They have been developed working with the insolvency profession and have been approved by the Insolvency Rules Committee.
The rules have been recast to reflect modern business practice and to make the insolvency process more efficient. Please note that the implementation of the new rules will have ramifications on the procedure laid out above in relation to winding up an insolvent company.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.