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Closing a limited company: How to close a company?

Companies / SME Aug 18, 2020 - 03:17 PM GMT

By: Sumeet_Manhas


Many times a person can decide to shut down their limited company. This can, for many reasons, like the desire to retire or join full-time employment. You may also chance upon the opportunity to become the sole trader. No matter the reasons, you need to make sure that you are not keeping any loose ends. If you miss any of the legalities, it can be problematic. 

All outstanding payments and bills need to be cleared, money that your clients still owes to you should be collected, etc. All these things may sound straightforward, but that is not the case. It can get quite complicated, and a professional who has been helping limited companies close must be consulted. 

How does the dissolving process work?

The dissolving process will depend upon the company's solvency or insolvency. No matter what the situation is, there is always a solution. 

The process of closing down a solvent company: 

If you have a solvent company that means your limited company can pay back all its liabilities without any hassle as they are under no threats from their creditors. 

If you are falling in this limited company category, then there are two options available to you. Depending upon your company's assets, you can choose the Members Voluntary Liquidation MVL option or the Company Dissolution or Strike off option. It is an excellent place to be as you will be ready to repay all your debts within 12 months. 

Members Voluntary Liquidation: The member's voluntary liquidation is regarded as the most tax-efficient method that directors can choose. It gives the stakeholders the ability to accept the company's value rather than being subjected to income tax and capital gain tax. 

Company Dissolution or Striking off: when the capital gain releases of your company are less than 25000 Pounds, then the only option is striking off. It is not easy to process, and professional guidance is required to tie up all the loose ends. 

The process of closing down an insolvent company: closing down a solvent company is still considered less of a headache than insolvent by many. However, with the right guidance, you will be able to get out of that situation without much worry. Many tend to see solvency as a synonym for bankruptcy, which is wrong. 

Your company is considered insolvent when the liabilities outweigh the assets when you are drawing the balance sheet of the company. In such a situation, the part of using creditors' voluntary liquidation process is still open to you. 

When you are in debt and feel that your creditors are going to take legal action against you, this is your safest bet. The Insolvency Service may start investigating your company if it feels that you did not try to clear your debts. It can become quite problematic for you and avoid such a situation going with creditors' voluntary liquidation. This way, you will be able to get the advantage of claiming the redundancy of being a director of an insolvent company.  

Another option: a period of dormancy

If you do not wish to shut down your company entirely, there is another option available. You can choose to make your company dormant this means your company wants to perform any of its normal business activities. A dormant company is also recognized by its lack of income to be filed for an extended time. This is the only alternative available to some people who want to keep an option open if they wish to continue with the limited company as a future trade. 

Your company's dormancy should only begin after all the taxes have been paid. Do not leave any work unresolved, as can be quite problematic. During the dormant period, you would have to submit annual accounts of the company, yearly confirmation statements, and dormancy statements to the appropriate departments. 


If you have better opportunities, it is to your benefit that you move on. Your company may also fall into a tumultuous period, and you can rack up a lot of debt. This death can be a massive headache, and even if you feel that you can come out of it, it has the potential to become a sinkhole. If you do not jump ship at the right time, you will get sucked into crippling debt or miss the opportunity to further move your business. 

To solve this problem, you are limited company directors, and stakeholders can decide that it is in everybody's interest to close down the company. Do not feel scared as many companies are going to help you go through the entire process. Many people considered that the tedious process of establishing a bureaucracy is nothing compared to the work the goes in trying to shut it down. Take the help of a professional and do the needful to close your company without any hassle. 

By Sumeet Manhas

© 2020 Copyright Sumeet Manhas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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