Nobody goes into business expecting to fail. Entrepreneurs often devote huge chunks of their lives attempting to get companies off the ground – but the truth is, sometimes the odds are just not in your favour. Unforeseen competition, complications and changing personal circumstances can dismantle even the most promising of start-ups.
If that’s a situation you’re now finding your business in, don’t worry – you’re not alone. According to research by commercial insurer RSA, more than half of UK start-ups fail within five years. That doesn’t mean you should give up on your business ambitions.
Need a hand regaining that entrepreneurial spark? We’ve devised this guide to walk you through how to pick up the pieces if your company fails, and start again.What is the Entrepreneurs’ Relief scheme, and is my business eligible?
How do I legally close my failed company?
First thing’s first: if your company has failed, you need to shut that company down before turning your attention to a new idea.
The process of legally closing a UK limited company is called dissolution, and there are several ways to do it. The route you’ll need to go down to dissolve your company will depend largely upon the reason you’re shutting down.
If your company is still able to pay its bills and you are closing for another reason, that means your company is still solvent. That means you can strike your company off the Register of Companies through Companies House.
To strike your solvent company off the register, you must meet the following criteria:
- Your company has paid all its debts.
- Your company hasn’t traded in the last three months.
- Your company hasn’t changed its name in the last three months.
- Your company isn’t under threat of liquidation.
- Your company does not have any agreements in place with creditors.
If your business meets all these criteria, your company directors are obligated to close the business. That means they must warn all stakeholders, ensure business bank accounts have been closed and cancel any domain names the company has been using. Other tasks will include paying all wages and tax, informing HMRC and sharing assets amongst company shareholders.
Directors must also complete and sign Form DS01, and deliver it to Companies House. Within one week of filing that form, your company directors must also ensure copies of the application to strike your company from the register are sent to everyone with a vested interest in your company.
As long as there are no objections, Companies House will strike your company off the register within three months of receiving your application.
Alternatively, a solvent company can also use the process of members’ voluntary liquidation to wind up a solvent company. This process sees company members use the company’s assets to pay off all of the money owed to creditors. If there is any money left after paying those bills, it can then be distributed amongst company shareholders.How can I sell my business?
Detailed guidance, including the forms you’ll need to fill out in order to carry out the process of members’ voluntary liquidation, can be found on the UK Government website.
On the other hand, if your failed company can’t pay its bills, this means it is an insolvent company. To shut your insolvent company down, you will need to use the creditors’ voluntary liquidation process.
To carry out creditors’ voluntary liquidation, your company shareholders will first need to vote to cease trading activity by passing a special resolution. Your company directors must then pass a resolution to voluntarily wind up the company.
From there, you’ll need to appoint an insolvency practitioner to act as a liquidator and take control of your company’s closure. You can search for the nearest licensed insolvency practitioner in your area on the UK Government website.
Within 14 days of the passing of your company’s voluntary resolution, you will then need to advertise your company’s closure in The Gazette and organise a meeting to be held with your company’s creditors. You’ll need to give those creditors seven days’ notice of that meeting, which will also need to be advertised in The Gazette.
Finally, you’ll need to prepare a Statement of Affairs to present at that meeting using Form 4.19 if your company is registered in England and Wales, or Form 4.4 if your company is registered in Scotland. Within 15 days, your resolution to voluntarily wind your company up should be filed with Companies House.
How do I come up with my next business idea?
After shutting down your failed company, you’ll be free to pursue your next business idea – and the sky is the limit. How you choose to proceed next depends upon what it is you’d like to achieve with your next company, and will inherently be guided largely by your experiences in running your previous business.
So, before you get ahead of yourself, you’ll need to sit down and assess what went wrong with your business. Develop a list of what worked, what didn’t work and try to connect the dots by asking why those particular aspects of your business failed or found some degree of success. In turn, you’ll be able to paint a fairly good picture of the sort of things you’d like to replicate in the future – versus the things you know you’ll need to change moving forward.
Next, you’ll need to figure out what it is you’d like to do with your next business endeavour. If you’d like to have another go in the same industry, or carrying out a similar business activity, you’ll already be well on your way towards organising a new company. But if you’d like to try something a little bit different, there are plenty of opportunities available.
If you’re not quite sure what you’d like to do next, one of the first things you can do to try and start brainstorming is to ask yourself what the next big thing is going to be. Some of the biggest start-ups are often based on ideas that are ahead of the curve and forward-thinking – and so it’s worth sitting down to develop a list of industries that interest you more than others. Learn more about trends within that industry or existing market gaps you think you could fill.
In addition, your next business should also attempt to fill a niche. Once you’ve had a think about the sort of industry space you’d like your new company to operate in, conduct some background research on the successful companies already operating in that space. Find out what it is they’re offering to customers – and more important still, figure out what it is they’re not offering. Those areas could be perfect places for you to step in with a new business proposition.
If that doesn’t help you find a decent jumping off point with which to launch a business idea, have a think about the goods and services you’re using on a daily basis. Do you think any of them are sub-standard and could be done better? Alternatively, do you think you might be able to replicate those services and offer them for a cheaper price? This is often one of the best places to get the cogs turning and help you to come up with an innovative start-up idea.
After you’ve come up with a fairly firm idea for your next business, there will be plenty to do. You’ll need to conduct extensive market research, write a detailed business plan, think about financing, marketing and a dozen things in between. But before you do all of that, it’s usually worth cementing your idea in stone by legally forming a new company.
Registering your new limited company
Having already experienced running a limited company, you’ll understand why it’s worth forming a limited company. Not only will it afford your new business legal protections, but legally registering your company will also provide you with limited liability if your new business idea doesn’t quite pan out.
As a quick reminder, all you need to legally form a limited company in the UK is:
- A company name
There are a few rules in place about what you can choose, but you’ve got a lot of room to be creative. If your previous company is legally dissolved, you can even opt to register your new company using your old company’s name.
- A registered office address in England and Wales, Scotland or Northern Ireland
This can be anywhere in the jurisdiction you’ve chosen to form your new company in – but it must be a real address, and it cannot be a P.O. box.
- A company director
A company director is the person who manages your company. You can have more than one director if you choose.
- A shareholder or a guarantor
A shareholder or guarantor is the owner of your company. It can be the same person as your company director.
- A memorandum and articles of association
A memorandum and articles of association are the founding documents of your company.
- Share capital of at least one issued share
Please note that this requirement only actually applies to limited by shares companies.
- A SIC code
Your company’s Standard Industrial Classification (SIC) code is used by HMRC and Companies House to identify the industry you’re operating in and what it is your business does.
Are you ready to form your new company now? Quality Company Formations offers a diverse range of company formation packages designed to meet your company’s own, unique needs. Forming a company with our easy-to-use platform only takes a few minutes – and your company application will typically be approved within as little as three-to-six working hours.
After your new company has been legally incorporated, we will then send you your company documents, your VAT invoice and your Webfiling Authentication Code. Once you are ready to start trading, you will need to inform HMRC within 3 months of your company’s start date.
Even if you aren’t quite ready to start trading yet, you may simply want to form a new company to safeguard your chosen business name, or to motivate you to get started in the near future. If you choose this route, you will need to complete a CT41G form, which HMRC will send you 2 to 3 weeks after your company is incorporated, to inform them that your company is dormant.
The bottom line
At the end of the day, you should never be ashamed of failure. In fact, some of the world’s most iconic inventors and entrepreneurs failed time and time again before finally experiencing success. It famously took Thomas Edison 10,000 tries to create a lightbulb – and it took James Dyson 5,127 attempts to invent his bagless vacuum. Your failures will teach you a whole lot about what it is you do well, what you could be doing better and how you’ll be able to find success in the future.
So, learn from that success and move forward. Pick up the pieces from your existing company by legally dissolving it, and then put it in the past. Develop a new idea, and put all the pieces in place to transform that idea into a successful business. Then, form your new company, get out there and start trading.