How to Close a Limited Company UK
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If you are a director of a limited company that has served its purpose or is no longer profitable, you may consider closing it down. There are different processes for closing a limited company, depending on whether the company is solvent or insolvent. In this article, we will explain the steps and practical considerations involved in closing a limited company, as well as answer some frequently asked questions about the process.
What is the process of closing a limited company?
The process of closing a limited company varies depending on whether the company is solvent or insolvent. A solvent company is one that can pay off its debts, while an insolvent company is one that cannot.
Practical Steps Needed for All types of Company Closures
No matter what type of company closure you opt for, there are some practical steps you need to take. These steps include:
- Informing your employees: You need to let your employees know that you are closing the company. You must follow the legal requirements for redundancies and notice periods.
- Informing your creditors: You need to let your creditors know that you are closing the company. You should settle any outstanding debts before closing the company.
- Cancelling contracts and leases: You need to cancel any contracts or leases that the company has in place.
- Paying any outstanding taxes: You need to ensure that you have paid any outstanding taxes before closing the company.
Solvent or Insolvent Test
To determine whether your company is solvent or insolvent, you need to carry out a solvent or insolvent test. The test involves assessing your company's financial position by looking at its assets, liabilities, and cash flow.
If your company is solvent, you can close it down by either dissolving it or going through a members' voluntary liquidation. If your company is insolvent, you can close it down by going through a creditors' voluntary liquidation.
Closing an Insolvent Company
If your company is insolvent, you cannot simply dissolve it. You will need to go through a Creditors Voluntary Liquidation (CVL). This involves appointing an insolvency practitioner (IP) to oversee the liquidation process. The IP will sell the company's assets to pay off the creditors.
How to Close an Insolvent Company With Debts
Closing an insolvent company with debts can be a complex and difficult process. One option is to enter into a Creditors Voluntary Liquidation (CVL). This process involves appointing a licensed insolvency practitioner who will take over the management of the company and ensure that its assets are sold to repay creditors as much as possible.
In some cases, if there are insufficient funds to pay all the creditors, the remaining debts may be written off. The CVL process can take several months or even years, depending on the complexity of the case. It is important to note that as a director of an insolvent company, you need to be aware that there could be personal implications. You have a duty to act in the best interests of the creditors, and failure to do so may result in personal liability.
Seeking professional guidance and assistance is strongly recommended to ensure that the process is carried out correctly and in compliance with the law.
Closing a Solvent Company
If your company is solvent, you have two options for closing it down: a Dissolution or a Members Voluntary Liquidation (MVL).
Closing a Solvent Limited Company by Dissolution
Dissolution is a straightforward process for closing a solvent company. This is for companies which are solvent, have ceased to trade and are no longer needed. You need to submit a DS01 form to Companies House to have the company struck off the register. This process can take up to 2 months.
If your company has creditors (debts), then a dissolution / strike off application may not be the best route as any outstanding debts must be repaid beforehand. It's important to note that it is a criminal offence to not inform your creditors of your intent to dissolve a company within 5 days.
Closing a Solvent Company via Members Voluntary Liquidation
If your limited company is solvent and you have decided to close it, one option is to use a Members Voluntary Liquidation (MVL). This process involves appointing a licensed insolvency practitioner who will take over the management of the company and ensure that its assets are sold and distributed to the shareholders in a tax-efficient manner.
The process typically takes around three to six months to complete, but can be longer if there are complex issues to deal with. The MVL process can be an effective way to close a solvent company, as it allows the shareholders to receive the remaining assets and profits of the company in a tax-efficient way, and ensures that all legal requirements are met.
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How to Close a Company which is Dormant or has Never Traded
Closing a company that has never traded or is dormant can be a straightforward process, but there are still legal requirements that must be followed. If the company has never traded, you can simply apply to Companies House to have it struck off the register. If the company is dormant, it must be formally closed by submitting a DS01 form to Companies House.
Before submitting the form, it is important to ensure that all outstanding tax returns have been filed and any outstanding taxes have been paid. If the company has no assets or liabilities, the process should be relatively straightforward and can be completed within a few months. However, it is important to seek professional advice to ensure that all legal requirements are met and the process is carried out correctly.
How Much Does it Cost to Close a Limited Company?
The cost of closing a limited company can vary depending on a number of factors. If the company is dormant or has never traded, the cost should be relatively low, as there are no outstanding debts or legal issues to be resolved. However, if the company is insolvent or has significant debts, the cost can be much higher, as it may require the services of an insolvency practitioner and legal advice.
In general, the cost of closing a limited company can range from a few hundred to several thousand pounds, depending on the process most suited to your circumstances. It is important to seek professional advice to understand the potential costs involved and to ensure that the process is carried out correctly.
How Much Does a Creditors Voluntary Liquidation Cost?
The cost of closing an insolvent company via a Creditors Voluntary Liquidation (CVL) can also be relatively high, as it involves appointing an insolvency practitioner to manage the process and ensure that all legal requirements are met. Fees range from £3k to £6k depending on the complexity of the case.
Will Closing a Company Affect the Director Personally?
If you close a limited company, it usually doesn't affect the director personally, as the limited company is a separate legal entity. However, it can affect the director personally, especially if the company has outstanding debts. Directors can be held personally liable for any unpaid debts, including tax and national insurance contributions. However, if the company is solvent and has paid all of its debts, the director will not be personally affected.
It is imperative to check for any personal implications before entering any process of closing your company. We specialise in doing this, and our service is completely free. Get in touch with our team.
Can I Close a Company and Start a New One?
If you choose to close your limited company, you may want to start a new one. However, you should be aware of the rules and regulations around starting a new company. There are certain legal and financial implications that you need to consider to ensure that you are not breaking any laws or regulations. It is important to seek professional advice before starting a new company to ensure that everything is done correctly and legally.
How Long Does it Take to Close a Company?
The length of time it takes to close a limited company varies depending on the type of closure you opt for. For a simple dissolution, the process can take up to six months. For a more complex MVL or CVL, the process can take several months to a year or more.
How Much Tax do I Pay if I Close my Limited Company?
The tax implications of closing a limited company depend on whether the company is solvent or insolvent. If the company is solvent and you choose to close it via dissolution or MVL, you may be eligible for Entrepreneurs' Relief, which can reduce the amount of tax you pay. If the company is insolvent, any outstanding debts will need to be paid off before the company can be closed down.
Can you Close a Limited Company Yourself?
Depending on the process which is best suited to your company, you could close a limited company yourself through a dissolution / strike off, as this does not require an insolvency practitioner.
However, other more formal processes (such as a Creditors Voluntary Liquidation or a Members Voluntary Liquidation) require a Licensed insolvency practitioner, meaning you cannot close the limited company yourself.
Summary
In conclusion, closing a limited company is a complex process that requires careful consideration and planning. The type of closure you opt for will depend on whether the company is solvent or insolvent. Directors need to be aware of their personal liabilities and tax implications when closing a company. If you are unsure about the process, it is recommended that you seek free professional guidance from our team.
Where to Find Help
If you are a limited company director and are considering closing your company, it is important to seek professional advice to ensure that the process is carried out correctly.
One option for help is us, The Directors Helpline, a free and impartial service for limited company directors. We offer confidential guidance and can assess any personal implications of closing your company. Most people we speak to don't actually need to close their company, but if you do, we can point you in the right direction and assist with the process of closing your company. Don't hesitate to reach out to us for help and guidance.