Closing a Limited Company
There are a number of reasons why you might want to start the process of closing your limited company. Perhaps your business is no longer viable, or you’ve decided to retire.
Whatever the reason may be, there are some essential steps you need to take to ensure the process is done correctly.
First, you’ll need to notify HMRC that you’re closing your company. You can do this by completing a ‘Notice to Strike Off’ form. There are also other ways to close down your limited company and which one you choose will depend on the individual situation.
For example, if you are closing your company because it cannot pay the debts it owes you will need to undergo a compulsory liquidation.
If you are completing a company strike-off, you’ll need to pay any outstanding taxes to HMRC.
You should also notify your creditors that you’re closing the company, and arrange to pay any debts you owe them.
What is a limited company?
A limited company is a legal entity that is separate from its owners. The owners of a limited company are known as shareholders and these members can start the process of closing down your company.
When a limited company is closed down, its assets are sold and its debts are repaid. The shareholders then receive any money that is left after the company is closed down.
Striking off the company
When a limited company is closed, it can be ‘struck off’ the register at Companies House. This can also be known as dissolving your company.
You can dissolve your company if the following is applicable:
- Has not changed its name in the last 3 months
- The company is not threatened with liquidation and remains financially stable.
- Has not traded or sold stock in the last 3 months
- Has no agreements with creditors (such as a Company Voluntary Arrangement)
Once the strike-off is complete it means that the company no longer exists and cannot trade.
To start the process, you must first notify Companies House, followed by the submission of a final set of accounts.
To ensure you follow the correct procedure when striking off your limited company you must make sure than you announce your plans to interest parties and inform HMRC.
You must do so within 7 days of the application and also send a copy to anyone that could be affected by the strike-off. For example, this could be members of your company, creditors, employees, or directors.
You must ensure your employees are paid correctly. This involves following redundancy rules and paying each member of staff their final wages or salary.
The employer will also need to inform HMRC that there are no longer employees on their payroll scheme and no further PAYE or National Insurance will be due.
Any business assets that are left are the strike-off will need to be shared among the shareholders of the company.
This will be divided in line with the shareholder structure.
Any assets left over are legally transferred to the Crown. Assets like these are usually payments that the business is yet to receive, such as a HMRC refund.
You must send a final set of accounts and Company Tax Return to HMRC. Though on this occasion, you do not have to send your accounts to Companies House.
If you have made a loss in your previous year you may be able to offset this against the profits for your final set of accounts. This is what is known as a ‘terminal loss relief’.
When your company is being stricken off, any assets must be divided between its shareholders. However, if an asset is sold before your company is closed, you will likely have to pay Capital gains Tax on the amount.
This will need to be calculated and submitted via your Self-Assessment Tax Return. If the total exceeds £25,000 it will, in fact, be treated as income, and therefore, will be subject to Income Tax.
When a company has been closed down by a strike-off notice, the business must keep any documents; financial, legal, and accounting, for 7 years.
If the limited company employee members of staff, you must keep copies of your liability insurance policy for 40 years.
To apply for a company strike-off there are a few options available. You can send a DS01 form to Companies House, or apply online. https://www.gov.uk/government/publications/strike-off-a-company-from-the-register-ds01
Once you have applied for the strike-off, Companies House will be in touch to let you know if your application has been processed correctly and the company is now struck off.
If your application is successful, there will now be a period of 2 months where a member may reject the process.
If these 2 months pass without a rejection, your company will now be struck off the register and will no longer exist.
A notice will also be published in The Gazette. https://www.thegazette.co.uk/
To strike off and close down your limited company, the process will cost £10. This will be payable no matter which application process you choose.
The fee will be payable immediately and cannot be paid by the company you are attempting to close down.
In some cases you may need to withdraw your application to strike off your limited company.
This can be for a number of reasons, such as the business has continued to trade, or has become insolvent.
To withdraw your application you will need to use the Companies House online service. https://ewf.companieshouse.gov.uk/. or apply by post using the DS02 form. https://www.gov.uk/government/publications/withdraw-a-striking-off-application-by-company-ds02
To process the withdrawal only 1 director needs to sign the form.
Members Voluntary Liquidation
Another way to close down your limited company if it can still pay its debts is known as a member’s voluntary liquidation.
The process is typically carried out if:
The business owner wants to retire
You do not want the business anymore
No one else wants to run the business
There is only one form a business must complete in applying for a member’s voluntary liquidation.
If your company is registered in England or Wales, you must make a “Declaration of Solvency”.
If your company is registered in Scotland, you will need to ask the Accountant in Bankruptcy (https://www.aib.gov.uk/services/liquidation) for the ‘form 4.25’.
To submit a Declaration of Solvency the business must write a statement detailing that the directors of the company have assessed its financial position and can in fact pay any outstanding debts; with interest.
You will also need to include the following within this statement:
Names and addresses of company directors
Name and address of the company
How long it will take for the company to pay its debts (This can be no longer than 12 months from the date of liquidation.)
The Declaration of Solvency must be accompanied by a statement of the company’s assets and liabilities.
The declaration will then need to be signed by the majority of the company’s directors, and must be done so in front of a solicitor or ‘notary public’.
Once the declaration has been completed and signed by the directors, you will need to call a general meeting with shareholders. This needs to be done within 5 weeks.
This meeting is where the company will pass a resolution for voluntary winding up and an authorised insolvency practitioner will be appointed as a liquidator.
This liquidator will then take charge of the company.
Within 14 days the company’s resolution must then be advertised in The Gazette. https://www.thegazette.co.uk/
Finally, you will need to send your signed Declaration of Solvency to Companies House, or your form 4.25 to the Accountant in Bankruptcy. http://www.aib.gov.uk/about/contact-us
This will need to be done so within 15 days of the resolution passing.
Closing a Limited Company with Debts
If a company has debts that can’t be paid, there are a number of options available in regards to closing it down.
A director can apply to put the company into administration. This means the company does not have to pay its debts in full.
It also means it will be protected from legal action by people or organisations who are owed money by the company.
Another option is to apply for liquidation. There are 3 types of liquidation that a company can apply for:
Creditors Voluntary Liquidation
Put your company into administration
Each process has its own procedure and criteria to follow, so it’s important to seek professional advice if you are unsure which is best for you.
Creditors Voluntary Liquidation
If a company cannot afford to pay its debts, and enough shareholders agree, a limited company can arrange a Creditors Voluntary Liquidation.
In order to get enough of your creditors to agree for a liquidation, you must call a meeting and ask them to vote.
For the resolution to pass, 7% of shareholders must agree to the process.
The process of liquidation is farely straight forward and requires involving an insolvency practitioner.
The first thing you will need to do is appoint said insolvency practioner to take charge of the liquidating company.
Once you have done so, you will need to send the resolution of liquidation to Companies House within 15 days of the vote.
Finally, you will need to advertise the resolution in The Gazette, within 14 days.
After the a company has been liquidated, the responsibilities of the directors will change.
If you’re a director of the liquidating company you will:
No longer have control over the company or anything it owns
No longer be able to act for on behalf of the company
During the process of liquidation, director must:
Give the liquidator any information they ask for
Hand over any company assets, records or paperwork
Allow the liquidator to interview if they ask
After a company has been through the process of a compulsory liquidation or creditors’ voluntary liquidation you will no longer be able to use or promote another company with the same or similar name for 5 years.
This also includes any trading names the business had.
If your limited company cannot pay it’s debts, a form of liquidation it may apply for is what is known as Compulsory Liquidation.
This is where the director asks the court to order the company to stop trading and be ‘wound up’.
To be eligible for this process, your business needs to show the court that it cannot pay its debts. These debts need to be of £750 or more.
You will also need to make sure that at least 75% of the company’s sharehlders agree that the court can wind up the company.
To apply for a Compulsory Liquidation your company must fill in a ‘winding-up petition’; also known as a form Comp 1. https://www.gov.uk/government/publications/apply-to-wind-up-a-company-that-owes-you-money-form-comp-1
This form must then be sent to the courts along with a ‘form Comp 2, which confirms the details of your petition. https://www.gov.uk/government/publications/confirm-details-of-a-winding-up-petition-form-comp-2
Where you will need to send the petition depends on how much ‘paid-up share capital’ your company has.
You can find more information at the Companies House register.
If your paid-up share capital is £120,000 or more, you can submit the petition online which will go to the High Court. https://efile.cefile-app.com/
If your paid-up share capital is below £120,000 you can submit your petition online if it is one of the following courts:
Admiralty and Commercial Court
High Court (including Bankruptcy Court)
London Mercantile Court
If another court is dealing with the process that is not on this list, you will need to submit your petition by post.
To apply to the courts for a Compulsory Liquidation your company must pay the associated fees.
This will cost:
£280 for the court hearing
£1,600 to submit the application
If the court accepts your petition they will then give you a date for a hearing.
Before the hearing commences, you will need to:
Put an advert in The Gazette at least 7 days before the hearing
Serve a copy of the petition to your company
Fill in a ‘certificate of service’ to let the court know you have served a copy of your petition
Send a copy of the advert and the certificate to the court
Put your Company into Administration
If your company cannot pay the debts it owes it can be put into administration.
This is a process where your company will be protected from legal action by people or organisations who are owed money; also known as your creditors.
Once your company is in administration nobody can apply to wind up your company during the process.
Your company must appoint an administrator who is a professional insolvency practitioner.
Once you have done so, you will need to hand over control of your company, including any assets the company owns, to your administrator,
After your company has appointed a practitioner, and control has been handed over, the administrator will then write to your creditors and Companies House to say they have been appointed.
A notice of this resolution will also be featured in The Gazette.
An administrator will then attempt to stop your company from being struck off.
If this is not possible, they will then try to pay as much of your company’s debt as possible using its assets.
The next step is for them to produce a written statement explaining what their actions are and what they plan to do with your company.
This written statement needs to be sent to Companies House, in addition to employers and creditors.
The copy sent to these people will also include an invite for them to approve the actions, or schedule a meeting to amend these plans.
Your company’s administration will end when:
The administrator has determined that the purpose of administration has been achieved
The administrator’s contract ends (after one year), but it may be renewed.
The secretary of the company will send out a notice to all creditors informing them of the intention to wind up the company. A meeting of creditors will then be held, and an appointee from the insolvency practitioner will present the company’s financial position.
Preparing Statutory Accounts
When a limited company reaches the end of its life, a number of procedures need to be completed. One of the most important is the preparation of statutory accounts. These show the company’s financial position, and will be needed when the company is closed down.
Closing a Limited Company with Bounce Back Loan
A limited company with an outstanding bounce-back loan that faces liquidation cannot be struck off or dissolved. Instead, it must forgo a Creditors’ Voluntary Liquidation.
The company cannot be dissolved as this process is reserved for entities that have no liabilities or outstanding debts.
If a company needs a short-term loan to tide it over a difficult period, a bounce-back loan could be the answer. This is very similar to a bank loan. However, there are no credit checks involved, and the money is quickly handed over.
Many businesses have taken advantage of the availability of the bounce-back loan in recent difficult times.
This now means, these same businesses cannot simply strike off their company; a typically easy and affordable way to close their business.
Whilst you still might be able to start the process of striking off your company, the government have urged banks to object to any business that still has an outstanding bounce-back loan.
Which as we know from above, will prevent the application from moving forward.
Finding an Insolvency Practitioner
When a company’s financial situation means it’s unable to pay its debts, it must get an insolvency practitioner to help it close a limited company.
The insolvency practitioner will assess the company’s financial situation and decide how to proceed. They will also deal with the official procedures, such as notifying creditors.
To find an insolvency practitioner, you can use the government website to search your local area. https://www.gov.uk/find-an-insolvency-practitioner.
A practitioner will also provide professional advice if you’re not sure how to close your company.
Closing a Limited Company with a Directors Loan
If a director borrows money from their company, this is recorded in what is known as a ‘directors loan account’.
If the director has yet to repay the money they have taken out, the director’s loan account will show as overdrawn.
When a company approaches the process of liquidation an overdrawn account like this can be seen as a company asset.
This means it may also be seen as a recoverable company asset.
In this case, the director will be expected to repay that amount before it can be liquidated.
However, each circumstance is different and you should seek professional advice from your practitioner before moving forward.