Closing a Company

Companies are mostly started on a wave of optimism and whilst we may not like to think about our company closing, sometimes it is the right thing and in fact a new beginning for the business owner.  In this blog we explore your options for closing a company.

Striking Off

The process of striking off a company is straightforward.  A DS01 form is sent to Companies House to apply to strike the company off the register.  The company is then placed on a register and creditors and shareholders have the opportunity to object.  For small companies with few shareholders and no creditors it is highly unlikely that anyone objects and after three months the company is struck off.

Something to bear in mind is that if tax returns are not submitted HMRC may object and therefore it is advisable to get all tax returns on trading up to date before striking off.

Since the process is simple and the work required minimal the process is also very cheap.  This is therefore the route that most companies opt for if it is available. However where taxes and / or creditors are owed, it will not generally be an option.

Liquidation

If Striking Off is not an option, Company Directors can arrange for a Members or Creditors Voluntary Liquidation.  The basic idea of these liquidations is that Members (or shareholders) agree to liquidate the company and pass over the administration of the company to an Insolvency Practitioner.  In the case of Creditors Voluntary Liquidation which is used if a company is insolvent, it is the creditors who agree.

Liquidation can also be achieved by putting the company into administration which means appointing an Insolvency Practitioner.  The Insolvency Practitioner will then take over distributing remaining assets to creditors.

The liquidation process is more complicated and expensive, at least £2,000.

Going Dormant

Something to think about before closing a company is that once a company is wound up, all its assets and liabilities cease to exist.  In some circumstances, that may not be desirable.  The most common example of this is where a Director is owed money by the company.  Once the company is closed, there is no possibility of getting that money back.  If however there is a possibility at a later date that a new venture might be undertaken, the same company can be used and the debts repaid from profits.  

This could lead Directors to opt for taking a company dormant.  Dormant companies will still need to submit Dormant Accounts and a Confirmation Statement annually but the administration is minimal.  

Forewarned is forearmed

It can be hard to face up to the possibility of a business closing, with everything that a business owner invests.  Acknowledging the possibility, taking pre-emptive action and understanding the options available can be very empowering.  Our recommendation is to talk the issues through well in advance.