- make a formal decision to close the company by a majority decision of votes;
- notify HM Revenue and Customs (HMRC) of the closure of the company;
- pay off all outstanding debts and obligations of the company.
- prepare final statutory accounts and financial statements prior to the termination date;
- complete Form DS01 to apply for a voluntary dissolution. I emphasize that it is possible to close limited company online. In any case, the form must be signed by a majority of the directors of the company;
- submit all required documents to Companies House including completed Form DS01, final reports and any other required forms;
- inform employees about the closure of the company, making all necessary payments;
- inform partners about the dissolution of the company;
- distribute or liquidate company assets (if possible);
- receive a notice from Companies House confirming the dissolution of the company. At this point, the company ceases to exist as a legal entity.
Closing limited company and its differences from a regular company
- legal requirements: depending on the jurisdiction, the legal requirements for closing a limited company may differ. These requirements usually include notifying the relevant government authorities, filing the necessary documents, settling existing debts, fulfilling obligations to shareholders, including the distribution of remaining assets to shareholders. Without going into details, it is easier to close an ordinary company, since it is not required to liquidate a legal entity;
- legal entity: a limited company is a separate legal entity from its owners while a regular company is not. In other words, a limited company has its own legal rights and obligations that are different from those of its owners. In a conventional company, the owners are personally liable for the debts and obligations of the company;
- limited liability: the liability of the shareholders or members of a limited company is limited to the amount they have invested or guaranteed the company. In a conventional company, the owners have unlimited liability. This means that the shareholders are personally liable for the debts and obligations of the company;
- ownership structure: a limited company is owned by its shareholders, who own shares in the company. Shares in turn can be transferred or sold. In a typical company, ownership is held by one person or a group of partners;
- tax consequences: there may be different tax consequences when closing a limited company compared to a regular company. There may be different tax liabilities associated with capital gains, distributions to shareholders or transfers of assets.
Possible reasons for dissolve a limited company
1 reason: the goals of the company planned by you for the achievement of which it was created have been fulfilled; Some companies were created solely to capitalize on the current situation. For example, at the beginning of the spread of the pandemic due to Covid, food and drink delivery services were in maximum demand and brought enormous profits. On the “great guns”, many firms established their own business – the delivery of anything. However, the situation has changed, and the delivery of goods does not bring profit as at the very beginning. If there is no need for the existence of the company further, there is no need to pay salary, taxes;
2 reason: the company has never traded. The limited company has never traded. Therefore, no further step is required. In this connection, it can be dissolved without trading or receiving income or debt;
3 reason: the directors want to transform the limited company into a partnership or sole proprietorship. In this case, the directors may agree to dissolve a limited company, divide the assets and conduct business separately as sole proprietors or as part of another legal entity;
4 reason: the need/desire to change the jurisdiction of the company’s incorporation. If it becomes necessary to transfer the jurisdiction of the company, for example from Scotland to Wales or vice versa, you must dissolve the old company and register a new one in the new jurisdiction;
5 reason: the director/owner died. If there are multiple owners, the business can continue to operate. However, if the owner and director are the same person, the answer regarding the transfer of ownership through inheritance should be sought in the company’s articles of association. A new director may be appointed if the articles of association so provide. However, a decision may be made to dissolve the company instead;
6 reason: directors are retiring. When business owners retire, the company’s cash and assets can be distributed. But, as an option, you can withdraw money from the company and close it. If you have over £25,000 of net assets in the business, MVL (Member Voluntary Liquidation) may be your best option;
7 reason: there is no person to whom the management of the limited company could be delegated (for example, new investors, shareholders). This reason is completely similar to the reason for closing a company due to retirement. If there are no successors or new shareholders, and the only option left is to wind down the business and dissolve it. If new shareholders or successors cannot be found, the directors may have no choice but to close the company;
8 reason: liquidation for reasons of public interest. If the activity of the enterprise is not in the public interest, the company may be forcibly liquidated. The liquidation of a company for any reason that may affect the rights, health, welfare or financial position of the general public is a valid reason for such dissolution. If the Secretary of State provides sufficient evidence to show why the business should be wound up, the courts will consider whether it is appropriate to wind up the company under the circumstances;
9 reason: insolvency. There are two types of processes that lead to the liquidation of a company, namely forced liquidation and voluntary liquidation.
Limited company closing down process
1 way – Voluntary strike off;
2 way – Members’ Voluntary liquidation (MVL);
3 way – Creditors’ Voluntary Liquidation of an insolvent company;
Voluntary strike off
- during the previous three months, the company should not have been trading or otherwise doing business;
- during the previous three months the company should not have changed its registered name;
- there must be no threat of liquidation of the company or any existing agreements of creditors (for example, CVA).
Voluntary liquidation of members (MVL)
- companies registered in England and Wales must file a declaration of solvency. In turn, companies registered in Scotland must request Form 4.25 from the Accountant in Bankruptcy;
- within 5 weeks, the directors of the company must propose a special decision on the voluntary liquidation of the company. A majority vote of at least 75% is usually required for a decision to be made;
- when a special decision is made, the notice must be published in the Gazette within 14 days;
- a liquidator is appointed who takes control of the business and oversees the liquidation process;
- the liquidator completes and submits Form LQ01 to Companies House within two weeks of being appointed;
- upon completion of the liquidation process, the arbitration manager convenes a general meeting of creditors and participants. A full progress report on the liquidation is presented at this closing meeting. Notice of the meeting must be published in the newspaper at least one month in advance.
- the company is a “Closed Company” (i.e. has five or fewer shareholders);
- within two years after receiving the distribution, the owner is engaged in a similar trade or activity;
- the liquidation of the company, apparently, is aimed at reducing taxes.
Creditors’ Voluntary Liquidation of an insolvent company
- appoint a liquidator to take charge of the company and oversee the liquidation
- send the resolution to Companies House within 15 days of the meeting
- advertise the resolution in the appropriate Gazette (ащк London/Edinburgh/Belfast)
- the company should also hold a creditors’ meeting within 14 days of passing the resolution. Creditors must be given at least 7 days’ notice of this meeting and it will also need to be advertised in the Gazette. A Statement of Affairs (summary of the company’s assets and liabilities) must be presented at the creditors’ meeting, and a copy should be given to the liquidator afterward.
Everything you need to know when closing a limited company
- it will be necessary to de-register the company as a VAT payer – inform HRMC of your decision to de-register your company as a VAT payer through the VAT form 7.
- corporation tax payment – you must inform HMRC that your company is no longer trading so that they will not issue further corporation tax reminders.
- meet capital gains obligations – sell or transfer ownership of any equipment purchased by the company that is owned by the company (note that capital gains tax may be charged on the sale)
- PAYE Scheme – notify HMRC that your PAYE scheme is no longer active and needs to be closed.
When choosing methods of liquidation, one should assess the financial position of the company, and only then choose methods of liquidation.
1 action – the directors of the company must decide to start the liquidation process and obtain the consent of the shareholders for liquidation;
2 action – notify Companies House of the decision to close the company by filling out the appropriate form: DS01 (Striking off application) or DS02 (Withdrawal of striking off application);
3 action – prepare the final accounts of the company, in particular: the statement of assets and liabilities, as well as the report of the director. The above documents must reflect the real financial position of the company on the date of its closing;
4 action – nform HM Revenue and Customs (HMRC) of the closure of the company. Settle all outstanding tax liabilities. Obtain a tax clearance certificate from HMRC as proof of tax clearance;
5 action – prepare a dissolution statement that confirms that the company has settled all of its debts and obligations or has taken a number of steps to pay them off. The application must be signed by a majority of the directors of the company;
6 action – notify all known creditors and employees of the closing of the company. Fulfill obligations to employees: pay salary, pay debts (if any);
7 action – hold a final meeting with the directors and shareholders of the company to formally approve the dissolution of the company. At this meeting, record the decision of the directors/shareholders on the liquidation of the company as a protocol;
8 action – inform business partners or suppliers of the closing of the company;
9 action – close the company’s bank accounts and distribute the remaining assets among shareholders in accordance with their shares;
10 action – file final reports and tax returns, documents with Companies House and HMRC respectively;
11 action – cancel VAT registration by notifying HMRC if the company was a VAT payer;
In any case, the list of documents and actions related to the closure of the company should be assessed based on the method of liquidation of the company and other factors. A comprehensive assessment will help you save time and money associated with liquidation later on.
How long does it take
What is the price
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What are the legal implications
- before starting the process of closing, the company must fulfill certain legal requirements: to hold meetings of directors and shareholders of the company to decide on liquidation or dissolution;
- settle debts and obligations to creditors, employees and other third parties. In the event that the company is insolvent, the process may include liquidation, where an insolvency practitioner is appointed to manage the distribution of assets to creditors;
- respect the rights of employees whose interests must be taken into account when closing the company. Employment contracts may be terminated and employees must be duly notified and any arrears in wages or benefits paid;
- the directors have certain legal obligations during the closing process. In the event of a company’s insolvency, the directors must act in the interests of the company’s creditors and ensure that all legal requirements are complied with;
- once the closing process has begun, certain notices must be given: to notify the Companies House of the intention to dissolve or liquidate the company, as well as creditors and other interested parties;
- closing a limited company also comes with tax liabilities. The company must file final tax returns, settle all outstanding tax liabilities and deregister for VAT (if the company is a VAT payer);
Please note that the legal consequences may vary depending on the circumstances and the type of closure (dissolution or liquidation).
There are next ways how to close a limited company:
1 way – Voluntary strike off
2 way – Members’ Voluntary liquidation (MVL)
3 way – Creditors’ Voluntary Liquidation of an insolvent company
Please, note that you can also make your limited company inactive (dormant) if you are not completely sure that you want to liquidate your business or think that you will be able to use the company in the future.
There is no single answer or accounting estimate to the question “how much does it cost to close an LLC”. In addition, to the obligation to repay debts (if any), as well as pay salaries to employees (if any), there are various administrative costs associated with closing a company. It is important to understand the general approach to the costs of winding up a limited company: the amount of costs depends on the way in which the company will be liquidated, namely:
Option 1. Striking off a solvent company.
The easiest and cheapest option. You will be required to pay a fee of £10 to Companies House when applying for an exemption.
Option 2. Members’ Voluntary liquidation.
This option is already more expensive than the first. You will be required to pay a liquidator’s fee, which can range from £1,500 plus VAT. The total cost will depend on the complexity of the liquidation process. Many liquidators quote a fixed price for their services. You will also have to pay a fee to the Gazette for announcing your company’s liquidation (https://www.thegazette.co.uk/place-notice/pricing).
Option 3. Creditors’ Voluntary Liquidation.
The most expensive way to close limited company. The liquidator’s fee depends on the complexity of the process and the amount of work required. According to average estimates, the amount will vary from 3,000 to 7,000 £. If the company’s assets do not cover these fees, the directors may be personally liable for the costs.
Option 4. Compulsory Liquidation.
In this case, liquidation is enforced by creditors or HMRC. The cost of filing for liquidation is also paid by the creditor and not by the company. But it should be taken into account that any assets and finances belonging to the company will be confiscated by the liquidator and used to pay creditors.
Striking off a solvent company this is the easiest and cheapest way to close LLC. You will be required to pay a fee of £10 to Companies House when applying for an exemption. BUT to use this option, the company must meet the following criteria:
- there was no trade (business) during the last 3 months;
- the company has not changed its name in the last 3 months;
- not subject to any prospective or ongoing litigation;
- the company has not alienated the value of property or rights.