Any director considering closing a company will need to know what their options are. After all, there are several different ways it can be done. The best one for you will depend on your company’s situation and what you are hoping to achieve.
To help a director work out the best way to close their company, Clarke Bell takes a look at the different ways to close a limited company.
Is your company solvent or insolvent?
When it comes to closing a limited company, the first step is to establish whether your company is solvent or insolvent.
If your company is insolvent, meaning it cannot pay its debts or bills as they are owed, one set of options will be open to you.
However, if your company is solvent, there will be other options – including to close it through the Members’ Voluntary Liquidation (MVL) process – due to the tax advantages this provides you.
Closing a company through Members’ Voluntary Liquidation (MVL)
If you are looking to close a company that is solvent, a Members’ Voluntary Liquidation can be a good option.
An MVL is a voluntary process that is initiated by the company directors and shareholders when the time is right for them to close down their limited company – e.g. when they want to take up a PAYE-role (due to the IR35 rule changes) or retire, and so they no longer need their company.
It is a popular and HMRC-approved option for quickly and easily closing a company in a tax-efficient way. This is because any funds taken out of the business through an MVL are subject to Capital Gains Tax (CGT) rather than Income Tax. This is at 10% rather than 18% for the basic level and 28% for the higher level.
Further to this, there are additional benefits for the company owners who are eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief before 6th April 2020). If you are eligible, it means you can sell the company and pay 10% in CGT on profits – up to a limit of £1 million. This will allow directors to save a significant sum on their tax bill, making an MVL a quick, tax-efficient way of closing a business and freeing up funds.
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To undergo an MVL, the director of the company will be required to call a meeting with company shareholders. Next, a licensed Insolvency Practitioner will be appointed to oversee and carry out the process.
That’s one way to close a limited company, however, if your company is not in debt, and doesn’t have assets and liabilities that need to be dealt with, another way to close your company is through dissolution.
Dissolve a company
If your company is dormant and has stopped trading, an easy way to close it down is to dissolve it.
When a company is dissolved it will be struck off the Company House Register and will cease to exist.
This is an easy process that requires the director of the company to complete a DS01 form.
Dissolution is a good option for a company that no longer has a use and has fulfilled its purpose. This can be for a number of reasons, whether the director is looking to retire or wishes to move abroad.
Any company can be dissolved and it needs to meet the following conditions:
- It has not changed names within the last 3 months
- The company has not traded or sold off any stock in the last 3 months
- It is not being threatened with liquidation
- It does not have any agreements in place with creditors, such as a Company Voluntary Arrangement
However, if your company is insolvent and has debts that need to be dealt with, a different set of options remains open to you, one of these being liquidation through Creditors’ Voluntary Liquidation (CVL).
Closing a company through Creditors’ Voluntary Liquidation (CVL)
This is an option open only to insolvent companies, and it is a completely voluntary process that is initiated by the company directors.
One of the main benefits to closing a company through a CVL is that it avoids the company being forced into Compulsory Liquidation.
In this case, creditors who are owed a sum of £750 or more, that have had repayment demands gone unfulfilled will issue a winding-up petition to the courts. If the winding-up petition is successful, the courts will force the company to close. This can have a range of negative consequences for the director and leaves fewer options open to them in the future.
This is a good option for companies that are no longer sustainable, are in debt, can’t cover their daily costs and don’t have a viable future. Entering into a CVL allows the director to close their company in a responsible way, meeting obligations to creditors to whom they owe money and avoiding any risk of wrongdoing.
This will mean that more options remain open to the director in the future, such as opening another company if they wish.
To enter into a CVL, at least 75% of company shareholders must agree to the process. Following this, an Insolvency Practitioner must be appointed to organise the company’s affairs and carry out the liquidation process.
Need help closing a company? Ask Clarke Bell
If you are considering closing a company in 2021 and need help determining the best way to do it, Clarke Bell are here to help.
Whatever type of business you run and whatever type of size, we can help close your limited company in the best possible way for you.
We will work closely with company directors to assess their situation and find the best solution for you, whether that is Members’ Voluntary Liquidation or Creditors’ Voluntary Liquidation.
We offer expert advice and have, over the past 26 years, helped thousands of directors to close down their company.
To find out how we can help you, get in touch with one of our friendly team today.