If you’re the director of a limited company and want to cease trading, it’s important to do so via an established process in order to ensure your employees and creditors are treated fairly.
While it’s easy to establish a limited company in the UK, ceasing trading is typically a far more complicated process. In order to cease trading legally, you’ll need to ensure that your business complies with existing regulations designed to protect staff, suppliers and other creditors.
A variety of options are available for ceasing trading and closing down your business. Of these, the most common is a procedure called voluntary liquidation.
Below, we’ve explained how the voluntary liquidation process works and how you can use it to cease trading and close your business. We’ve also explained the potential issues you may face as you decide to stop actively trading via your limited company.
When you cease trading, you close your business and no longer accept purchases from clients or customers. You’ll need to pay any debts that your business has, such as to lenders, suppliers and other creditors.
A Creditors’ Voluntary Liquidation (CVL) is an insolvency procedure that’s designed for insolvent businesses. In a CVL, the directors of an insolvent business voluntarily cease trading and “wind up” the business, using the value of the business’s assets to compensate creditors.
Ceasing trading via a CVL is a common option for insolvent businesses that aren’t commercially viable, meaning they are unlikely to recover financially. A CVL often occurs after a long period of pressure and/or legal action from creditors to recover debts.
To close via a CVL, your business will need to be cash flow or balance sheet insolvent, meaning it can no longer afford to pay its creditors. If you believe that your business is insolvent and want to cease trading via a CVL, please contact our insolvency team for more information.
A Members’ Voluntary Liquidation (MVL) is a legal process for closing down a solvent business. Unlike a CVL, the MVL process is used for businesses that can successfully pay their creditors using existing assets and cash flow before ceasing trading.
If your business is solvent and you want to cease trading, the MVL process allows you to do so while extracting profits from the business. There are certain tax advantages to the MVL process, potentially making it a good option if your business has significant assets.
For example, cash distributed to shareholders via an MVL is subject to capital gains tax, rather than income tax. In certain cases, businesses closing via the MVL process may be eligible for entrepreneurs’ relief, lowering their capital gains tax rate.
Entering into an MVL is a complex process that requires an insolvency practitioner. If you have a solvent business that you’d like to close and want to learn more about using an MVL to cease trading, please contact our team for more information.
Company dissolution is a legal process that allows you to close down a solvent business. The dissolution process is typically simpler than liquidation and maybe the most effective option for your business if it’s financially solvent and has no debts.
Your business needs to take several steps before it ceases trading via dissolution. For example, you will need to pay any outstanding taxes, pay employees in compliance with redundancy law, deregister the company’s payroll scheme and VAT and close the company’s bank accounts.
You’ll also need to make sure that any business assets are distributed amongst shareholders in advance, as ownership of company assets will pass to the Crown following dissolution.
Dissolving a company has advantages and disadvantages, and may not be the best option for every business. If you’d like to learn more about the dissolution process, please contact us for further information.
If you want to cease trading but believe that you may use your company again in the future, it may be possible to register it as a dormant company.
Dormant companies have reduced administrative requirements, making it relatively cheap to maintain a dormant company entity. In order to be considered dormant for tax purposes, your company will need to comply with certain restrictions on its trading activity and income.
In the future, you can reuse your company and return to active trading after alerting HMRC to your business’s activity.
Registering a company dormant is a multi-step process, meaning you may have to complete several steps as company director before your company is dormant under the law. For more information about this process, its advantages and requirements, please contact us.
Closing a business and ceasing trading can be a complex process, particularly if your business has outstanding debts or is under financial pressure.
As specialists in insolvency and business recovery, we’ve helped a diverse range of businesses cease trading via liquidation and dissolution. Contact us now on 0800 9717185 or via email to schedule a free private consultation and learn more about your business’s options.
Copyright © Insolvency | FREEPHONE: 0800 9717185 | LOCAL: 0203 131 6690