Dissolution is a process that legally marks the end of a company. It is a voluntary process initiated by the company director when they wish to legally close down their business and have it struck off the Companies House registrar.
There is a range of reasons to consider dissolving your company, whether it has been a success and has now served its purpose, or perhaps it never grew as you desired and has been sitting dormant.
Whatever the reason, if you are considering dissolving your company, Clarke Bell are here to outline how the dissolution process works.
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What is dissolution?
Dissolution is a voluntary process that brings a company to an end.
To begin the dissolution process, the director must complete a DS01 form which costs £10 and is paid to Companies House.
Once this form has been completed, processed and returned, the company will be closed.
Although this is usually a voluntary process, dissolution can also be forced on a company for reasons of non-complianc. This might occur because the company doesn’t have a director in place or has failed to file annual returns or annual accounts.
Which companies can be dissolved?
Any company can be dissolved if it meets the following criteria:
- It hasn’t changed its name for the last 3 months
- It hasn’t traded or sold off any stock for the last 3 months
- It hasn’t been threatened with liquidation and doesn’t have any other agreements in place with creditors like a Company Voluntary Arrangement (CVA)
- It is solvent
Why choose dissolution?
There are many reasons a director might choose to dissolve their business.
It might be that they are looking to retire, or they may no longer have a need for the business and therefore want to close it. If this is the case, dissolving the company is an easy way to close it down.
Is dissolving a company the same as liquidating a company?
Dissolution and liquidation are terms that are often mistakenly used interchangeably. Although both dissolution and liquidation end in the company being closed, they are two different processes.
Dissolution is a way to close a company where no debt is present, or where any outstanding debt and other liabilities can be settled in full within 12 months.
However, liquidation is different. When a company has assets and liabilities that need to be dealt with, liquidation is usually the best option.
What is liquidation?
Liquidation is a process that extracts the assets from a company, selling them to realize money that is used to pay off outstanding debts.
Liquidation can only be carried out by a licensed Insolvency Practitioner who will oversee the entire process on the directors’ behalf.
There are two main types of voluntary liquidation: Creditors’ Voluntary Liquidation (CVL) and Members’ Voluntary Liquidation (MVL) which are both initiated by company directors.
There is also a third type of liquidation, compulsory liquidation, which is when a company is forced to liquidate by the courts. This is because they owe money to creditors who have issued a winding-up petition to the court in order to get back what they are owed. Just as it sounds, this is the most serious form of liquidation and can have a series of negative impacts for the company director.
How do I dissolve my company?
The process of dissolving a company is carried out by submitting a DS01 form. This must be signed by the majority of directors, or all of them is there is only one or two.
This form must be sent off to Companies House where it is processed. A copy must also be sent to all notifiable parties which includes any creditors, employees and shareholders. This process can now also be carried out online through the Companies House website.
Next, a notice will be placed in The Gazette announcing the decision to dissolve your company. Once this notice is shared, the company will be dissolved 3 months later if no objections have been made.
The Gazette will then run a final notice confirming that your company has been dissolved.
How do I prepare to dissolve my company?
There are a number of tasks that the director must do before applying to dissolve their company.
- Paying any outstanding taxes including corporation tax, PAYE and National Insurance.
- If you have any employees you must pay their final wages
- You will need to ensure that business assets are distributed amongst shareholders
- You will need to file accounts and a company tax return with HMRC. Here, you must state that these are the final accounts due to dissolution
- You will need to ask HMRC to close down the company’s payroll scheme and deregister for VAT if you are VAT registered
- Close company bank accounts
- Pay any outstanding debts or show that your company can settle these debts
- Notify interested parties and HMRC of your decision. This has to be done within 7 days of filing your dissolution application
To dissolve your company, you can either do this yourself or with your accountant’s help. You won’t need to appoint an Insolvency Practitioner.
If you are looking to liquidate your company, Clarke Bell can help you
We can help you if you’re considering liquidating your company, whether through a Creditors’ Voluntary Liquidation or a Members’ Voluntary Liquidation.
We will work closely with you to find the best way forward. Our team have over 26 years’ experience and offer the best insolvency advice. Get in touch and see how we can help you today.