Closing A Limited Company: A Step-by-Step Guide

Closing down a limited company can be a difficult operation, especially if it hasn't been trading for a long time and still has assets and liabilities. The ultimate goal is for the firm to be dissolved, but how that happens will be determined by a number of factors.

How should a limited business be wound up?

If the firm is solvent after accounting for any contingent liabilities, a corporate application for striking-off or a Members' Voluntary Liquidation ("MVL") may be the best option for dissolution. This is usually determined by whether the company's net assets exceed £25,000. If it does, the Capital Gains Tax treatment of a Liquidator's capital distributions may make an MVL more beneficial to shareholders.

If the firm is insolvent and there is no way to save it or its business as a going concern, liquidation may be the best course of action.

Voluntary and compulsory liquidation are the two types of liquidation:

The directors begin a voluntary liquidation, shareholders appoint a Liquidator, and creditors are given the option of nominating an alternative liquidator or keeping the shareholder-appointed Liquidator.

Compulsory Liquidation is a legal process that begins with the filing and service of a winding-up petition. The Insolvency Service or Official Receiver acts as Liquidator after the Court issues a winding-up order.

When a firm becomes insolvent, it can file a strike-off application. However, a creditor is likely to protest the proposed striking-off, therefore obstructing the proposed dissolution path. In this circumstance, an application puts the directors at risk of being charged with a crime, which could result in a fine and/or imprisonment. It is a criminal offence:

When a firm is ineligible for striking-off, this form is used.

to give incorrect or misleading information in an application or in support of one;

failing to send a copy of the application to all relevant persons within seven days of receiving it;

If the company becomes disqualified, the application will not be withdrawn.

The Companies Act 2006, Sections 1004 and 1005, define the conditions in which a business may not apply to be struck off.

Application for a strike-off by a company

The directors can request for a business to be struck off if it is suitable and the firm is eligible. Companies House will liquidate a company two months after the notification is published if there are no objections. This procedure can be completed quickly and at a low cost. It does, however, expose the directors to increased risk and liability if the firm fails to meet the Companies Act 2006's qualifying standards.

Voluntary Liquidation of Members (Solvent)

If an MVL is deemed appropriate, shareholders will choose a Liquidator to wind up the company's affairs. The company is dissolved two months after it is completed and a final account is filed with Companies House. If there are no complaints, this will be done. This process is more expensive and takes six to twelve months to complete when compared to a corporation application for striking-off. In most situations, however, the MVL's cost is significantly outweighed by the tax benefits to shareholders.

Liquidation: Voluntary or Compulsory? (Insolvent)

The Liquidator is necessary to realise corporate assets for the benefit of creditors in either a Voluntary or Compulsory liquidation. Both methods entail an inquiry into the company's activities to uncover any unsuitable behaviour by the directors as well as any antecedent transactions that a Liquidator could recover for the benefit of creditors. The firm is dissolved two months after the administration of the winding-up is concluded and the Liquidator has filed his final account with Companies House. If there are no complaints, this will be done.

In either a solvent or bankrupt scenario, directors should seek professional guidance from their accountant and an Insolvency Practitioner as soon as possible. Due to additional director responsibilities and potential personal obligations, this is even more crucial if the firm is insolvent.

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