The process you take to close down your dormant company will depend on whether the company is solvent (i.e. it can pay its debts) or insolvent (i.e. it can’t pay its debts). Having determined this, you can then take the best course of action to close it down.
If you are a shareholder of the dormant company and there are no active directors, then a director will need to be appointed.
Closing a solvent company
If the dormant company is solvent, then you will have a couple of options to consider. We would always recommend that you discuss your situation with your Accountant to determine which is the best option for you.
This option involves voluntarily ending the company’s legal existence. This is done by submitting a written application to Companies House and paying the appropriate fee to have the company struck off the register.
When considering applying for dissolution, you need to be sure that the company has not traded for at least 3 months, and that there are no outstanding legal or insolvency procedures against you.
A Members Voluntary Liquidation (MVL)
The other option you have is a Members’ Voluntary Liquidation (MVL), which is often the most tax efficient way to close down a solvent dormant company. Depending upon the total value of the assets your company owns, an MVL could save you thousands of pounds.
Through an MVL, you will be able to have the company removed from the register and get your share capital released out of the company. If you are eligible, as most of our clients have been, you could also qualify for Entrepreneur’s Relief (ER) which allows you to benefit from a 10% marginal rate on distributions. (Your Accountant will be able to help with this too.)
While you can use an MVL to withdraw your investment, keep in mind that distributions over £25,000 will fall under tax rules for capital distributions, and as such will be subject to capital gains tax (CGT).
If you want to place your company into MVL, you will need to appoint an Insolvency Practitioner. They will charge a fee, but the tax savings you get will usually outweigh the liquidation fee.
Closing an insolvent company
If your dormant company is insolvent (i.e. it can’t pay its bills) then a Creditors’ Voluntary Liquidation (CVL) is likely to be the best option for you to take to close it down formally.
Again, you will need to appoint an Insolvency Practitioner to place your company into liquidation, and they will charge a fee.
A CVL is an extremely effective option for closing the company after it’s been dormant for a long time. Any assets would be sold and distributed equally amongst creditors on a pro-rata basis. While all your legal duties as a director are fulfilled.
It is a great way of formally closing down the company, so that you no longer need to think about it.
How can Clarke Bell help you?
If you are looking to close down your company, Clarke Bell can guide you through the various procedures to ensure you pick the best option for you.
Call our friendly and professional team and we will discuss your situation with you.
This advice is free and confidential, so you have nothing to lose.