When a company is dissolved, it is officially closed before being struck off the Companies House register which is the public register of companies in the UK.
There is more than one process through which a company can be removed from the register, but by far the easiest and cheapest is dissolution. Unfortunately, dissolution is a route that is only available to businesses that meet a certain set of criteria.
In this guide, Clarke Bell takes a closer look at what dissolution is and what the process involves, to help company directors determine whether this is the right way to close their business in 2022.
What is business dissolution?
As we have already touched on, the dissolution of a company is a way of closing it down.
The result is that the company will stop trading and operating and it will be taken off the official register of companies at Companies House.
Once the dissolution process has been completed, the company no longer exists as a legal entity.
However, this is not an option that is open to all companies.
In order to close a business through dissolution, a company must meet certain conditions.
- The company must not have sold any stock or traded within the last 3 months
- The company must not have changed names in the last 3 months
- The company must not currently have any payment agreements in place, such as a Company Voluntary Arrangement
- The company must not face threats of liquidation or any type of insolvency procedure
Is dissolution the same as liquidation?
Many directors confuse the terms dissolution and liquidation. After all, both refer to the process of closing a company. However, they are two very different ways of doing so and are therefore not the same.
Whereas dissolution is a way of closing a company that has no debt present, liquidation is the process of closing a company with assets and liabilities that must be dealt with.
In the instance that the company is solvent and has assets that must be realised, it can enter into a Members’ Voluntary Liquidation (MVL.)
In the instance that the company is insolvent and therefore has debts that need to be dealt with, a Creditors’ Voluntary Liquidation will instead be the better route.
To find out more about this option, check out our complete guide to Creditors’ Voluntary Liquidation.
Finally, there is also a form of forced liquidation, otherwise known as compulsory liquidation.
Here, a company is forcibly shut by the courts. Compulsory liquidation usually occurs when a company owes money to creditors. Who then issue a winding-up petition to the courts in order to retrieve what they are owed.
Compulsory liquidation is the most serious form of liquidation, therefore, if your company is in debt it is always better to take control and enter into Creditors’ Voluntary Liquidation before the situation gets any worse.
How to end your business through dissolution
If your company has no assets or liabilities that need to be dealt with, and it meets the criteria for dissolution, this will be a route you can take.
However, you will now need to know how to close a company through dissolution in the correct way.
To dissolve a company, the director must complete and submit form DS01. This has to be signed by the majority of company directors, or all of them in instances where there are just one or two.
The DS01 form will need to be sent to Companies House and a copy will also need to be sent to all notifiable parties. This includes company creditors, shareholders and any employees.
Once the form has been submitted, a notice will be advertised in the Gazette of the decision to dissolve the company.
Following this, the company will be dissolved after 3 months, as long as there have been no objections made. Finally, a notice confirming the dissolution of the company will then be published in the Gazette.
How to prepare for dissolution
However, before submitting a DSO1 form, there are a number of tasks the company director must carry out.
Firstly, the director must ensure that any business assets are distributed amongst its shareholders.
This must be done before applying for dissolution. Failure to do this will lead to any remaining company assets becoming property of the Crown.
Next, the director must ensure that any employees are given their final wage. If you are making any staff redundant then you will need to make sure you adhere to the rules surrounding this. You must ask HMRC to close the company payroll and deregister the company for VAT if applicable.
If the company owes any outstanding tax such as corporation tax, PAYE or National Insurance, then these amounts must also be settled.
Once employees are paid and outstanding taxes are settled, final accounts and a company tax return must be filed. Here, the director must declare that these are final accounts owing to the planned dissolution.
Following this, all company bank accounts will need to be closed, and any relevant parties must be informed of the decision to dissolve the company. This notice must be given within 7 days of applying for dissolution.
Whether you are considering dissolution or liquidation, Clarke Bell is here to help
If you are unsure about the best way to close your business and would like some free, initial advice on the best path forward, Clarke Bell is here to help.
Whether you think that dissolution would be the best option, or perhaps are considering liquidation, either Members’ Voluntary Liquidation or Creditors’ Voluntary Liquidation, we are here to work closely with you to get the best outcome under the circumstances.
To see how we can help you, and to take the first steps to closing your business in the correct way, just get in touch with Clarke Bell today.