Any director considering closing a company will need to know what options are open to them. After all, there are several ways a company can be closed, from liquidation to dissolution.
In this guide, Clarke Bell takes a closer look at the dissolution route, explaining how the process works and who is eligible to close their business in this way.
What is dissolution?
The dissolution process legally marks the end of a company.
This is a process that is voluntarily initiated by the company director at a time when they have decided that they wish to close down the business. This will result in the business being struck off the Companies House register and ceasing to exist.
The dissolution process can be brought about by completing a DS01 form. This comes at the cost of £10, which is paid to Companies House.
This form has to be signed by a majority of the company directors, or all of them if there are just 1 or 2. It then needs to be submitted to Companies House, and a copy must also be sent to all notifiable parties – including shareholders, employees and creditors.
The company will then be dissolved and closed, with a notice being put in The Gazette announcing the decision to dissolve the company.
Can any company be dissolved?
It is worth noting that although this is usually a voluntary process, it can also be an option that is forced onto a company. This will be for reasons of non-compliance which usually means that the company has no director in place or has failed to file its annual accounts or returns.
However, it is usually a voluntary process and is an option open to any business that meets the following criteria:
- It is solvent (i.e. it can pay all its bills)
- The business name has not been changed in the previous 3 months
- It is not being threatened with liquidation
- It doesn’t have any agreements in place with creditors, such as a Company Voluntary Arrangement
- It has not sold any stock in the last 3 months
- It has no assets
- It has not traded in the last 3 months
How to prepare for the dissolution of the company
Before applying to have a company dissolved, the director must first fulfill a number of duties.
Firstly, the director has to ensure that any assets are distributed amongst shareholders. This has to be done before dissolution is applied for. Any assets that remain in place when the company is dissolved will become the property of the Crown.
The director must also ensure that any employees are paid their final wages. If you have decided to make staff redundant, then you must follow specific rules surrounding this.
Next, any outstanding tax liabilities must be paid, including Corporation tax, National Insurance or PAYE tax that is owed. The director must also file accounts and submit a company tax return. Stating that these are final accounts due to the upcoming dissolution of the company.
Any company that is VAT-registered will need to deregister, and the company’s payroll scheme must be closed. This can be done by contacting HMRC.
The director must be able to show that the company has paid any outstanding debts, or that it can do so within the next 12 months. They must then close company bank accounts.
Finally, HMRC and any other interested parties must be informed of your decision to close the company through dissolution.
Directors must keep hold of any business records and documents for the 7 years following the closure of the company.
Should I end my business through dissolution?
The benefits of dissolving a company are that it is a fairly cheap and straightforward way to close a company.
However, if any false information is provided in the application to dissolve the company, knowingly or otherwise. Or if the director fails to inform an interested party of their decision to dissolve the company, then there can be a range of negative consequences including fines, director disqualification and, in the most serious of cases, prison sentences.
If a creditor has grounds to believe that the company hasn’t been closed down in the correct way, they can ask Companies House to restore the company to its register. This allows creditors to then chase the company for any unpaid debts.
Therefore, it is important to note that dissolution is not a way to close a company with debts . If your company has debts that need to be dealt with, it will need to be closed through a different process, namely liquidation.
Dissolution vs liquidation
The terms dissolution and liquidation can often be used interchangeably. However, it is important to note that these are two very different processes.
Whereas a director can end the business through dissolution when no company debt is present. Or where outstanding debts can be settled within the following year. Liquidation is a process for companies that have assets and liabilities that need to be dealt with.
There are three forms of liquation, including Creditors’ Voluntary Liquidation (CVL), Members’ Voluntary Liquidation and compulsory liquidation.
CVL and compulsory liquidation are ways for insolvent companies with debts to close, whereas an MVL is an option available exclusively to solvent companies.
Find out more about liquidation and what the processes entail in our handy guide.
Need help closing your company?
If you are looking to end your business through dissolution, or you are unsure if this is the correct path for you, Clarke Bell can help.
Our team of friendly experts will work closely with you to get to know your situation and find the best option for you.