Considering whether to close a limited company or make it dormant is a big decision, so it’s important to explore all options before committing to a course of action. We explore the options below.
Perhaps your company has stopped trading, you’re thinking of taking a career break or retiring, or you’ve decided to accept a permanent job offer and move back to employment. The choice between dissolving your company or making it dormant requires careful consideration.
How to close a limited company
If you are certain that you want to permanently stop trading and close your limited company, you must first determine whether the business is solvent or insolvent.
If your company is solvent (i.e., it can pay its debts), you can close the company in one of two ways:
- apply to Companies House to have the company struck off the register, or
- start a members’ voluntary liquidation
If your company is insolvent (i.e., it is unable to pay its debts), you will have to liquidate the company by arranging a creditors’ voluntary liquidation or a compulsory liquidation.
Under each arrangement, a liquidator will be appointed to take control of the company, oversee the winding up process, and use your company’s assets to pay off any debts that it owes.
1. Apply to have your company stuck off the register
This is the easiest and most cost-effective way to close a limited company. To be eligible to have your company struck off the register, the business must not:
- have traded or disposed of (sold) any stock within the past 3 months
- have changed its name in the past 3 months
- be threatened with liquidation
- have any agreement in place with its creditors, such as a Company Voluntary Arrangement
To strike off your company, you must file form DS01 at Companies House and pay a fee of £10. Before doing this, you will need to:
- notify HMRC and all other interested parties that you are applying to have the company struck off
- ensure that all employees are made redundant in accordance with the rules and pay their final salaries or wages
- inform HMRC that you have stopped employing people
- share any business assets between members before striking off the company, otherwise these assets will be transferred to the Crown
- submit a final Company Tax Return and annual accounts to HMRC
- pay any Corporation Tax and any other business taxes owed by the company
When you have submitted Companies House form DS01, your striking off request will be published in The Gazette. If no one objects within 2 months of publication of the notice, your company will be struck off the register. A subsequent notice will be published to confirm that the company has been dissolved.
2. Start a members’ voluntary liquidation
If you cannot satisfy all of the the conditions required to strike off your company, you will need to initiate a members’ voluntarily liquidation instead. This alternate procedure is available if your limited company is solvent and:
- you have decided to retire, or
- you are stepping down from the business and there is no one to take your place, or
- you no longer want to run the business
To close a limited company by members’ voluntary liquidation, you must:
- assess the company’s assets and liabilities, to confirm that it is able to pay its debts
- make a ‘Declaration of Solvency’ (English and Welsh companies) or request form 4.25 from the Accountant in Bankruptcy (Scottish companies)
- pass a members’ resolution approving the voluntary liquidation
The Declaration of Solvency (or the Scottish equivalent) is a written statement confirming that the company directors have assessed the business and are confident that it is able to pay its debts. It should also include the following details:
- registered name and registered office address of the company
- names and service addresses of all directors
- timescale required for the company to pay its debts, which must be within 12 months of liquidation
- statement of all company assets and liabilities
When the written statement has been completed, the following steps must be taken:
- The Declaration of Solvency or form 4.25 (for Scottish companies) must be signed by a majority of the directors, in the presence of a solicitor or notary public
- Call a general meeting of the company shareholders within 5 weeks of signing the declaration, and pass a members’ special resolution for voluntary liquidation of the company
- Appoint an authorised insolvency practitioner to take control of the company and oversee the liquidation process
- Advertise the members’ revolution in The Gazette within 14 days of being passed at the general meeting
- Submit the signed Declaration of Solvency to Companies House, or send form 4.25 (for Scottish companies) to the Accountant in Bankruptcy, no later than 15 days after passing the resolution
Once the liquidator has been appointed, the directors will no longer have control of the company or any of its assets. The liquidator will deal with all administrative matters involved in the closure of the business.
3. Liquidate an insolvent company
If your company is insolvent and you have made the decision to close it, the interests of creditors will take precedence during the liquidation process. You can either arrange a creditors’ voluntary liquidation or you can apply for compulsory liquidation.
To arrange a creditors’s voluntary liquidation, you will need to call a general meeting of the shareholders and propose a special resolution of the members approving the winding up of the company. If the resolution is passed, you must:
- appoint an authorised insolvency practitioner to take charge of liquidating the company
- submit the members’ resolution to Companies House within 15 days of the general meeting
- advertise the members’ resolution in The Gazette within 14 days
Alternatively, if you are a director, you can apply directly to the court requesting compulsory liquidation of the company.
You must demonstrate to the court that the company is unable to satisfy outstanding debts of £750 or more and that 75% of shareholders’ votes approve compulsory liquidation.
Making a company dormant
A dormant company is one which is currently inactive with “no significant accounting transactions” during its financial year, but it remains on the register at Companies House and can start trading again at any time.
Making your company dormant is the better option if you simply wish to take a break from running the business for a fixed or indeterminate period of time; if you want to test the waters with retirement or a new job; or if you have any doubts whatsoever about closing your company and having it struck off the register.
There are a number of advantages to making a company dormant rather than having it struck off the register:
- There is no limit to the length of time that your company can remain dormant
- You can start trading through the company again in the future
- The process of making a company dormant is easier and cheaper than closing a company
- You can take time away from the business without having to commit to its permanent closure
- There is very little administration or cost involved in the maintenance of a dormant company
To make your company dormant, you must notify HMRC as soon as possible. You may have to deliver a Company Tax Return and annual accounts to HMRC for the period of activity prior to becoming dormant.