Last Updated on November 8, 2024 by admin
Not everyone who starts a company always thinks of shutting down, however, the change in the marketing landscape brings a lot of outcomes making
Company dissolution becomes inevitable if the company has stopped trading, insolvency, non-compliance, or voluntary decision.
Just like incorporating a UK company, company dissolution has to follow certain steps to ensure a clear and orderly closure of its operations. This article will give a step-by-step guide on how you can dissolve your company and stay compliant with Companies House.
Why dissolve a company?
Cease trading: If your company is not trading, you can choose to dissolve it if it is highly unlikely for it to trade in the future.
Financial difficulties: Severe debts or financial difficulties can lead to the decision to dissolve the business.
Retirement: Business owners may opt for retirement or to exit the enterprise, resulting in dissolution.
Mergers or acquisitions: Companies undergoing mergers or acquisitions may choose to dissolve to streamline the process.
Change in business strategy: A significant change in the company’s objectives or market conditions may necessitate dissolution.
What are the types of company dissolution?
Voluntary dissolution: A company that is capable of meeting its financial obligations has the option to cease operations through voluntary strike-off, which is the most economical approach. Directors of the company may apply for voluntary dissolution. Additionally, a subsidiary company that no longer requires its name may also seek a voluntary strike-off. Companies that have ceased trading can likewise opt for this process. To initiate voluntary closure, it is necessary to complete and submit a DS01 form. The company must meet the following criteria to deregister using form DS01:
- It must not have engaged in trading within the last three months.
- It must not have entered into any agreements with creditors, such as a Company Voluntary Arrangement (CVA).
- It must not have changed its name in the last three months.
Involuntary dissolution: When a company is unable to fulfil its financial obligations, the rights of creditors take precedence over those of directors or shareholders. Several options are available in this situation:
- Administration: Initiate administration proceedings for the company.
- Striking off: Request the removal of the company from the register by Companies House.
- Creditors’ Voluntary Liquidation: Organise a creditors’ voluntary liquidation. In this scenario, assets may be liquidated to settle debts with creditors before the company’s closure. Various types of liquidation exist, but creditors’ voluntary liquidation (CVL) is the most frequently utilised method when the directors independently determine that the company should be dissolved due to insolvency.
How to dissolve a company as a sole trader?
Decide to close: As a sole trader, you can decide to close your business at any time without needing approval from others.
Notify HMRC: Inform HM Revenue and Customs (HMRC) that you are closing your business. You will need to deregister for VAT if you are registered and cancel any PAYE schemes if you have employees
Settle debts and collect receivables: Pay off any outstanding debts and collect any money owed to you. This ensures you close your accounts cleanly.
File final tax returns: File your final self-assessment tax return and any other required tax documents. This includes reporting the sale of any business assets and paying any remaining taxes.
Cancel licences and permits: Cancel any business licences and permits you have. This might include local, state, or federal permits.
Close business accounts: Close your business bank accounts and any other financial accounts related to your business
Retain documentation: Keep all business records for a defined period, usually about six years, to safeguard against possible audits or legal challenges in the future.
How to dissolve a limited company in the UK?
Dissolving a limited company in the UK involves several steps, and the process can vary depending on whether the company is solvent (able to pay its bills) or insolvent (unable to pay its bills).
If the company is solvent:
Board resolution: Hold a board meeting to pass a resolution to close the company. This must be agreed upon by the directors and shareholders.
Notify employees and creditors: Inform all employees and creditors about the decision to dissolve the company.
Apply for Strike Off: Submit a DS01 form to Companies House to apply for the company to be struck off the register. This is the most common and cost-effective method.
Settle debts and distribute assets: Ensure all debts are paid and any remaining assets are distributed among the shareholders.
Final accounts and tax returns: File final accounts and a company tax return with HMRC, and ensure all taxes are paid
If the Company is Insolvent:
Creditors’ Voluntary Liquidation (CVL): If the company cannot pay its bills, you may need to enter into a CVL. This involves appointing an insolvency practitioner to liquidate the company’s assets to pay off creditors.
Administration: Alternatively, you can put the company into administration, where an administrator takes control to try and pay off as many debts as possible.
Compulsory liquidation: If creditors force the company into liquidation through a court order, this is known as compulsory liquidation.
Can a company still operate if dissolved?
Once a company is legally dissolved, it cannot continue its regular business operations. However, there are a few exceptions:
Winding-up period: After dissolution, there’s usually a winding-up period during which the company settles its affairs. This includes paying off debts, distributing assets, and handling any remaining legal matters.
Limited activities: Some jurisdictions allow a dissolved company to engage in limited activities necessary for winding up. For example, it might complete existing contracts, collect outstanding payments, or transfer assets.
Specific purposes: In certain cases, a dissolved company can continue to operate for specific purposes. For instance:
- Legal proceedings: It may need to defend itself in ongoing legal proceedings.
- Tax filings: To fulfil tax obligations, including filing tax returns.
- Asset liquidation: If the company still holds assets, it can sell or distribute them.
Conclusion
In conclusion, one has to follow these steps to make sure they dissolve their company according to the Company’s Act.
BusinAssist offers company dissolution services to UK-registered companies. We submit your company dissolution application to Companies House and address any queries they may have. If you do not have an address, we can help you rent ours during the dissolution process.
The process may take a minimum of 8 weeks to complete and we provide all required assistance during the company dissolution process.
For more information, contact us at [email protected].
FAQs
Q: How to close a business as a sole trader in the UK?
Ans: To close business as a sole trader you will need to:
- Notify Her Majesty’s Revenue $ Customs (HMRC) that you are no longer self-employed
- Submit the final tax return including all the profits, expenses, losses, and income
- Deregister for VAT
- Settle any debts you may have
- Close business accounts
- Inform customers and employees if you have
- Dispose of assets if you have them. You will have to account for the capital gain tax on assets
- Claim relief
Q: In which circumstances should I close my business?
Ans: There are different circumstances when it may be best to close a business, for instance if your business is constantly losing money, if there is a decline in demand for your products or services, or you may simply have personal circumstances. You should align your company dissolution process with tax deadlines and legal requirements to avoid complications.
Q: What to do with assets when closing a business in the UK?
Ans: To determine what to do with assets when closing a business, you will have to consider if your company is solvent or insolvent. For the solvent companies, you can sell or transfer assets to shareholders.
For insolvent companies, a licenced insolvency practitioner will sell the assets and proceeds will be used to pay creditors.
Q: Who pays redundancy when a business closes?
Ans: When a business closes in the UK, the employer is generally responsible for paying redundancy to employees. If the employer cannot afford to pay redundancy, employees can claim redundancy payment from the government’s Redundancy Payment Service.
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