The Ultimate Guide to Closing a Limited Company

Ryan Patrick

• 8 min read
The Ultimate Guide to Closing a Limited Company

Closing a Limited Company involves going through some legal obligations, processes and procedures. The process could be quite simple or in some cases complex depending on the methods of closing up and the condition of the company.

It is thus important to understand the approaches and methods of winding up a Limited company, the legal obligation that must be fulfilled with each approach taken and so on. Maintaining adequacy while dissolving a company helps you ensure a smooth dissolution whereas the inability to go through the right steps could bring about some legal complications.

So it is essential that you explore the different methods of closing up a Company, how each one is done, the timeline and expectations, the prices and so on.

How to Close a Limited Company

When you decide to close up a Limited company, there are several ways or methods you can take. The method to use will be dependent on whether the company is solvent or insolvent. A company is solvent if it's able to pay its bills and it is insolvent if it's unable to pay its bills.

If your company is still solvent and you wish to close up, you can do that through these two methods:

  1. Voluntary Strike off
  2. Members Voluntary Liquidation

If on the other hand, the company is insolvent, it can wind up through:

  1. Creditors Voluntary Liquidation
  2. Compulsory Liquidation by Creditors or HMRC

Now let's explore how these methods work.

1. Voluntary Strike Off

This is the easiest way to wind up a Company. It is suitable to use when a Company has stopped carrying out business operations and doesn't have any outstanding debt. To use this method, the company has to file and submit the DS01 form with the Companies House. Striking off a company with the Companies House cost only £10. Before a company could be eligible for a voluntary Strike Off, it must meet up with the criteria below:

  1. There must not have been a change of name in the past 3 months.
  2. The company must not have outstanding debts.
  3. The company must not be carrying out any insolvency procedure
  4. There must not have been any business operations and activities within the last 3 months.
  5. The shareholders and directors of the company must accede to the Strike off terms.

Once a company determines its eligibility for the Strike off process, the directors of the company should notify the employees, secretary, creditors and every other important stakeholder of the company's intention to Strike off.

Apart from that all business activities should be stopped and all forms of debts and liabilities should also be paid. The director is also expected to ensure that the company's account and tax filings are up to date. All of these are  the preparation process that must be done before the actual Strike off.

To apply for the Strike Off, simply do the following:

  1. Visit the Companies House website and complete the form DS01
  2. Provide up-to-date information about the company, shareholders, and directors.
  3. Provide proof of shareholders' agreement to Strike off. You can achieve this by providing a copy of the shareholder's resolution.

Once the Companies House has received and confirmed all information submitted, the Companies House will publish a notice of the Strike off in the appropriate Gazette.

This notice is made available to the public for 2 months. This is to create public awareness and enable any potential individual like a creditor who wishes to object to the Strike off to make appropriate notification.

If there isn't any objection within these 2 months, the Companies House will approve the Strike off and a confirmation letter will be sent to the company registered address. This letter indicates that the company has been successfully Strike off.

2. Members Voluntary Liquidation (MVL).

Members Voluntary Liquidation is most suitable when a Company is still solvent but the shareholders wish to stop the business operation. With this, a liquidator will be appointed who will guide the distribution of assets among shareholders and the repayment of any outstanding debts.

Members Voluntary Liquidation involves an organized way of winding up a Limited company while also ensuring that members receive their share of the company assets based on their share contributions to the company. To be eligible for the MVL, the following criteria must be met.

  1. The company must be able to pay its debts within 12 months
  2. The director must make a statutory declaration indicating that the company's financial position is suitable for an MVL

Once the eligibility criteria have been met, the following steps should be taken to carry out the Members Voluntary Liquidation successfully:

  1. Shareholders of the company should hold a meeting where a special resolution to wind up will be passed. They should also delegate on appointing a liquidator.
  2. The director's statutory declaration of the company's solvency should be submitted to the Companies House. This declaration is done after the directors have ascertained the company's financial positions and its eligibility to be wind up through MVL
  3. Once the liquidator has been appointed, he takes charge of handling the company's paperwork, reporting the assets, paying up outstanding debts etc.
  4. Once all debts and liabilities have been paid up, the liquidator guides the distribution of the assets among the shareholders based on their share contributions to the limited company.
  5. The liquidator is expected to prepare a statement that explains the company's Liquidation procedure, how the assets were shared and how debts were paid. This statement will be submitted to the Companies House. After that, the company waits for 3 months for the closing up to be approved.

3. Creditors Voluntary Liquidation(CVL)

In a situation whereby a company can no longer pay its debts or it's simply insolvent, then a Creditor Voluntary Liquidation can be used to close up the company. This method involves using a licensed insolvency practitioner who will guide you through the Closing process.

CVL usually is used when a company winds up with the intent of distributing its assets to the creditors. And it is done to prevent a Compulsory Liquidation through the court orders. To close up a Company using this method, the following process will be taken:

  1. The directors of the company ascertain the company's financial status and if they determine that the company has run into insolvency, they call a meeting to discuss the company's situation.
  2. A general meeting of the shareholders will then be called where the proposal to wind up the company will be discussed.
  3. Shareholders meeting will be held again where a special resolution to wind up the company will be passed. This resolution must be passed when at least 75% of shareholders’ voting rights have been met.
  4. Once the CVL has been agreed upon by the shareholders, an insolvency practitioner will be appointed to see through the winding-up process.
  5. The insolvency practitioner then organizes a meeting with the company's creditors. He is expected to present the company's financial position and the reasons for the CVL to the creditors. The creditors also appoint a committee that will also work with the insolvency practitioner all through the winding-up process by ensuring that the creditor's interest is protected.
  6. The insolvency practitioner then starts working on the company's assets by valuing and selling them off. The assets could be the company's machines, devices, inventory, properties and so on. Once sold off, the money gathered is used to pay up the creditors.
  7. The creditors are expected to provide their claims detailing the amount owed by the company to the insolvency practitioner. The insolvency practitioner then verifies all the claims and ranks them following the appropriate insolvency laws.
  8. Once all of that is done, the practitioner distributes the cash from the assets sold to the creditors.
  9. Reports and statements are prepared by the practitioner to show how the assets are sold and funds are distributed to creditors. When all obligations have been carried out, the company is removed from the Companies House register within 3 months.

4. Compulsory Liquidation

Compulsory Liquidation is used when a company is forced to close up due to its inability to pay up its debt. This is usually initiated by the creditors or HMRC and most times beyond the control of the company.

The winding-up process is usually initiated by the creditors by filing a winding-up procedure with the court.  If the court carries out its investigation and ascertains that the company has gone into insolvency, it will order the company to close up.

HMRC usually uses this Closing method when a Company is unable to fulfil tax obligations for a long time. Other lenders and suppliers can also go through the court if they feel a company will not be able to pay up its debts.

Once the court issues a winding-up order, an insolvency practitioner will be appointed to liquidate the company and sell off its assets. When this is done, the company loses its legal existence and is closed up.

How long does it take to Close up a Limited Company?

Closing up a Limited company in the UK takes a varying period of time depending on the method used. While it could take up to 3 months to wind up a Limited company through Strike off, Members Voluntary Liquidation and Creditor's Voluntary Liquidation could take up to 6 months. Compulsory Liquidation through a court order could take up to a year.

How Much Does it Cost to Close a Limited Company?

The cost of closing up a Limited company also differs depending on the closing-up methods.

1. Strike off

This is the simplest and cheapest method. It costs £10 when submitting the winding up application to the Companies House.

2. Members Voluntary Liquidation

This involves paying the insolvency practitioner fees which could cost up to £1500 or more plus VAT. The exact amount to be paid will be determined by the complexity of the procedures to be taken by the practitioner and the amount of work to be done. Apart from that you will need to pay the Gazette the appropriate fee for them to announce your company winding up.

3. Creditors Voluntary Liquidation

This is the most expensive method that requires a complex and thorough process by the liquidator. The liquidator could charge about £3000 or more depending on the amount of work that needs to be done.

4. Compulsory Liquidation

This includes the petition cost and other court-related costs which are usually covered by the creditors or any other party that requests for the petition order. While the business doesn't have to spend much here, all the assets of the company are sold off and used to pay the creditors.

Reasons for Limited Company Closure

Limited Companies close up for some reasons:

  1. Many Limited companies close up when the company no longer generates profits or income
  2. Company Closure might also be necessary when debts and liabilities accumulate rather than the assets and funds.
  3. When the owners or shareholders of a company retire, they could close up the company if they wish.
  4. If the shareholders feel there is a change in the direction of a company or wish to pursue another business Purpose, they could dissolve the company.
  5. A limited company can also be forced to close up if it consistently fails to meet up with some legal obligations like making tax payments.
  6. A company might also be closed up if the owner feels the company has fulfilled its purpose. Some limited companies are formed to carry out some specific projects. Thus when the business missions have been achieved, the shareholders could decide to wind up the company

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Frequently Asked Questions

What is the DS01 form?

DS01 form is a form or document filed and submitted to the Companies House when a company decides to strike off. It is usually submitted by a company director and it indicates the intent to stop all business operations and cease the company's existence.

Can I start a new company after Strike off

Yes, you can start a new company after striking off the previous one. You would be able to do this immediately after winding up.

How do I close a dormant Limited company?

If your company has not been involved in any business transactions since formation, you can easily dissolve it. As such the company wouldn't have any assets or liabilities. Thus you would be able to apply for the company to be dissolved with the Companies House.

Can I Reopen a Company that has been dissolved?

Yes, you can re-open a company that has been dissolved. You will be able to do this by applying for a court order or passing through some administrative procedure. However, if the company was dissolved voluntarily, a court order is needed for restoration.

Conclusion

As a Limited company in the UK preparing to dissolve, it should be noted that the process involved is a complex one, especially when the company has gone into insolvency. As such all legal obligations and procedures should be observed and taken care of while closing up the company. Do you have any questions about Closing a Limited Company? You can contact one of our experts here for answers today.