Dissolution is the process of closing down a company as a legal entity. Thousands of companies are dissolved each year and, although the procedure has its benefits, it is not suitable for every situation.
A director can dissolve their company provided that the company hasn’t:
- traded or sold off stock in the last three months
- changed names in the last three months; or
- been threatened with liquidation and there are no agreements in place to repay creditors – such as a Company Voluntary Arrangement (CVA).
When might a company want to enter dissolution?
Dissolution can be a particularly useful solution for companies that have served their purpose, are no longer active and are unlikely to be required in future.
One of the most common reasons for people dissolving their company is that the director wishes to retire and there is no one appropriate to take over.
Can a company be dissolved if any debts are outstanding?
No. A company can only be dissolved if it is solvent. Therefore, all outstanding debts must be paid to creditors before the dissolution process begins.
If company directors opt to dissolve the business in the hope of writing off debts, this is an offence. Failure to repay debts before dissolving a company, or lying in the application, could see the director(s) facing a fine and possible prosecution.
What are the advantages of dissolving a company?
There are a number of advantages to dissolving a company that is no longer needed, including:
- the process can be instigated quickly and is usually completed within a reasonable amount of time
- the process is affordable and low-cost
- there’s no requirement to fill annual returns and accounts once the company has been struck off
When would dissolving a company be the wrong option?
There are some situations when dissolving a company is the wrong option for you, including:
- the company has debts which need to be re-paid. If the company cannot afford to pay them, a Creditors’ Voluntary Liquidation (CVL) may be the best option. You should not try to dissolve the company and hope that you get away with not paying the debts that the company owes
- if your company is solvent with assets of (typically) more than £25,000. In this case, it is likely that a Members’ Voluntary Liquidation (MVL) will be the most tax-effective way for you to close down your company. You don’t want to miss out on money that is rightfully yours.
Further information
If you’d like to dissolve your company, the GOV.UK website will provide you with more information and guidance.
However, if you think that dissolving your company might not be your best option, then give us a call. (The advice we’ll give you is free.)
Clarke Bell has helped thousands of companies through the liquidation process – both solvent and insolvent. So, we can help you work out the best course of action for you and your company.
