This Is How You Close Your Company
The process of starting a new company is relatively straightforward, especially when you use the services of a formations team to setup a company — you’ll be trading and selling your products in no time at all.
However, the process of closing your company can be comparatively complex with a number of stipulations to bear in mind. We’ll outline everything from how to close a limited company that never traded to an established limited company, and whom to contact when you’re ready to cease trading.
Closing Down a Limited Company
Before we explain how to close a limited company that never traded, it’s vital we look at the factors associated with closing down an established, limited company so you can draw necessary comparisons depending on your company’s status.
Closing a limited company mainly depends on two things:
- Is it solvent?
- Is it insolvent?
Strike a Solvent Company Off the Register
When a company is solvent it means it is able to pay its bills (insolvent companies are unable to pay their bills). The simplest way to close a solvent company is for the company director to apply directly to Companies House in order to have the company struck off the register.
In order to strike off a solvent company with Companies House, a few conditions must be adhered to, such as outstanding debts must be cleared and the company must not have traded within the last 3 months. Once cleared of these conditions, the company directors can proceed with signing and submitting a DS01 form to Companies House.
If your submitted form and details are met uncontested, then it should take approximately 3 months to strike off your company.
Note on expenses: This is often the most cost-effective method for company closure. You will need to pay a £10 disbursement fee to Companies House when submitting your striking-off application.
Voluntary Liquidation by Members
Before we outline how to close a limited company that never traded, an alternative method to closing a limited company that has traded is through members’ voluntary liquidation.
In order to close a solvent company through members’ voluntary liquidation, the directors must declare and confirm that its debts can be completely paid within 12 months from the start date of the winding-up process.
Follow these steps when closing a company through members’ voluntary liquidation:
- Companies registered in England and Wales must make a Declaration of Solvency. Companies registered in Scotland must request Form 4.25 from the “Accountant in Bankruptcy”.
- Company directors must call a special resolution within 5 weeks in order to pass a resolution to voluntarily wind up (this will normally require at least a 75% majority). If successful, the resolution to wind up should be published in the Gazette within 14 days of its passage.
- A liquidator must be appointed to overlook the winding-up process and to take control of the business in this period of time.
- The liquidator must submit the form to Companies House within two weeks of being appointed.
Once the liquidation process is finalised, the creditors and members will attend a general meeting as is called by the insolvency practitioner where a comprehensive liquidation progress report will be presented. The Gazette should advertise this meeting at least a month before it is held.
The progress report presented at this meeting must be sent to Companies House within a week of the meeting as well as a Return of Final Meeting. Pending a lack of objection from the courts, dissolving a company will be executed within approximately 3 months of filing the report.
Note on expenses: A members’ voluntary liquidation requires a liquidator’s fee, which can range from upwards of £1500 plus VAT. The ultimate cost will depend on the complexity of the liquidation process. Many liquidators tend to quote a nominal fee for their services. You’ll also be required to pay a fee to the Gazette for publishing your company liquidation notice.
Voluntary Liquidation by Creditors
For insolvent companies (those companies unable to pay their bills), directors can practice a creditors’ voluntary liquidation process.
Voluntary liquidation by creditors begins with a general meeting of shareholders as is called by the director. In order to cease trading and successfully pass a winding-up resolution, a 75% majority vote from the shareholders is required. If a resolution is passed, the company must do the following:
- 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 Gazette.
Additionally, the company is required to hold a creditors’ meeting within 14 days of passing the resolution as well as notifying the creditors of the meeting at least 7 days prior. Additionally, the meeting must be advertised in the Gazette.
At the creditors’ meeting, a summary of the company assets and liabilities, known as Statement of Affairs, must be presented and subsequently a copy given to the liquidator.
Once any outstanding assets have been converted into money and paid to creditors, then the liquidation process can be finalised. It will take approximately 3 months from the time the liquidator holds the final meeting for the company to be struck off the register.
Note on expenses: Voluntary liquidation by creditors is normally the costliest way to close a company. Again, the liquidator’s fee is based on the complexity of the process. Typically, you can expect to pay approximately £3000 to £7000. If your company’s assets do not cover these fees, then the directors may be personally liable to cover the costs.
For companies that cannot pay their bills and are unable to reach an agreement with creditors, a court application may be made for a winding-up petition that will aim to close down the company. The company will be liquidated and the appointed liquidator will aim to sell any assets.
Note on expenses: The cost of issuing the winding-up petition is paid for by the creditor, and not the company. However, any company-owned assets and finances will be seized by a liquidator and used to pay the creditors.
Closing Down a Company That Has Never Traded
If you’ve had a dormant company from the date of registration — in which case HMRC will class it as “inactive” — then it will not be susceptible to tax liabilities like VAT, PAYE, or corporation tax. As long as you can evidentially and legally declare that your company has never traded and indulged in capital gains from trading products or selling business assets, you’ll be exempt from paying any sort of business taxes.
However, it is recommended to contact HMRC for confirmation of your company status and understand whether closing your company has resulted in/will result in any untoward implications. Notably, you may continue to receive correspondence from HMRC at your registered office address if you do not finalise and confirm your company status.
Dissolve a Dormant Company
And this is how to close a limited company that has never traded! It’s a fairly simple process when you have a dormant company (a company that have never traded) as long as the majority of a company’s directors agree with the closure.
Once the agreement has been reached to close down your dormant company, the process of how to close a limited company that has never traded is similar to the section above regarding the striking off of a company: a director must request and submit Form DS01, which should be filed with Companies House for a £10.00 fee. The following details will be required:
- Company name.
- Company Registration Number (CRN).
- Names and signatures of all or the majority of the directors.
A notice will then be published on the Gazette in London, Edinburgh, or Belfast (depending on your Companies House jurisdiction) and will display the confirmation of your closure. This publication simply notifies any third parties who may object to your company closure. If no objections are exercised within the three-month period, then Companies House will post a follow-up Gazette notice to confirm the closure. The process of how to close a limited company that has never traded is reassuring for company owners as dormant companies rarely receive any objections.
The process on how to close a limited company that has never traded needn’t be too overwhelming as long as you follow the correct procedures.
It’s worth noting that when you close your company, any business-owned assets must be transferred from the company’s ownership and shared amongst shareholders. Failing to do so will result in the Crown owning said assets at the date of dissolution.
The key thing to remember is to apply to Companies House for company closure and ensure you have not traded within the past 3 months; not changed your company name within the past 3 months; are free of any legal proceedings; and not made a disposal for the value of property rights. Once you check all the boxes, the process to close your company will be swift.
For assistance with closing your company, or to find out more about what information you need when you inform Companies House, contact to our reputable company formations team who will help you every step of the way.