Closing Down a Limited Company
From insolvency to new opportunities to a simple desire to retire, there are various reasons that you may want to close down your limited company.
While opening a limited company is a fast and relatively simple process in the UK, closing down a company can be significantly more complicated. As a company director, the options available to you to close down your company vary based on its financial status.
Below, we’ve listed the options that are available to you to close down your limited company in the UK. We’ve also explained how each option works and the situations in which it may be the best solution for your business.
For more information, please contact us. Our experienced insolvency practitioners can help you to learn more about the best way to legally cease trading and close your limited company.
Closing a Limited Company: The Basics
There are several different ways to close down a limited company in the UK. The most common options include members’ voluntary liquidation (MVL), creditors’ voluntary liquidation (CVL) and compulsory liquidation. Some companies may also be able to close via dissolution.
- If your company is solvent, the members’ voluntary liquidation (MVL) process allows you and other shareholders to close down the business and extract any profits.
- If your company is solvent, you may also be able to close down at a lower cost via the company dissolution (striking off) process.
- To use these options, your company will need to be financially solvent and will have to settle its outstanding debts with creditors, including HMRC.
- If your company is insolvent, you may be able to close down via the creditors’ voluntary liquidation (CVL) process.
No two businesses are identical, meaning there’s no one-size-fits-all option that’s best for every business. Our experts can help you learn more about the most suitable option for your business and assist with the closing down process.
Closing Down a Solvent Limited Company
If your company is solvent, you’ll be able to close it down via a members’ voluntary liquidation (MVL) or company dissolution.
Your company is solvent if it:
- Has more assets than liabilities
- Is able to pay its bills and other liabilities as they fall due
If your company can’t pay its debts or has liabilities that exceed its assets, it may be insolvent and will need to close via a different procedure. Closing options for solvent companies include:
Members’ Voluntary Liquidation (MVL)
A members’ voluntary liquidation (MVL) is a formal procedure that allows a solvent company to close down. As part of the MVL process, a licensed insolvency practitioner will be appointed to close down your company as cost-effectively as possible.
You may wish to close your company via an MVL if you:
- No longer want to continue running the company, as it is no longer generating sufficient profit.
- Plan to retire and wish to close the company and extract profits.
- Want to close down the company and extract profits via a tax-efficient process.
Closing down a solvent limited company via the MVL process has several advantages. The first is that profits extracted from the company are not subject to income tax, and are instead subject to capital gains tax.
When you close a company using the MVL process, you may also be eligible for entrepreneurs’ relief. This may further reduce the amount of tax you need to pay.
Closing down a solvent limited company via company dissolution is a simple and inexpensive option.
In order to dissolve your limited company, you’ll need to pay creditors and make sure that your business has paid all of its taxes and National Insurance liabilities. You will also need to close your payroll scheme and cease trading for at least three months.
Using the company dissolution process, your company will be struck off the Companies House and the company will cease to exist legally.
Closing Down an Insolvent Company
If your company is insolvent, you will not be able to close via the members’ voluntary liquidation (MVL) or company dissolution processes.
Your company is insolvent if it:
- Has more liabilities than assets
- Is unable to pay its bills and other liabilities as they fall due
If your limited company is insolvent, you need to cease trading as soon as possible. Continuing to trade after your company is insolvent could expose you and any other company directors to charges of wrongful trading.
Creditors’ Voluntary Liquidation
A creditors’ voluntary liquidation (CVL) is an insolvency procedure that allows your company to formally close down and deal with its outstanding debts.
You may wish to close your company via a CGL if you:
- Are facing pressure from creditors, such as a statutory demand or winding up petition
- Realise that your company is insolvent and want to cease trading and close down the company as efficiently as possible
Closing your business via the CVL process allows you to enter into liquidation voluntarily. Your company will cease operating and its assets will be liquidated in order to pay creditors, such as suppliers, employees, and HMRC.
If your business is insolvent and under pressure from its creditors, entering voluntary liquidation via the CVL process may reduce your risk of facing charges of wrongful trading.
Compulsory liquidation is an insolvency procedure in which your company is forced to close by its creditors.
A creditor can force your company into compulsory liquidation by receiving a winding up order against your business. As part of the liquidation process, your company’s assets will be sold to compensate its creditors and the company will be struck off the register.
Allowing your company to enter into compulsory liquidation isn’t recommended. You may face legal action if you are found to have acted wrongfully by trading while insolvent. You also won’t be able to appoint your choice of insolvency practitioner to oversee the company’s closure.
Talk to Our Company Closure Experts
If you want to close your limited company, we’re here to help. As specialists in insolvency and business closure, we’ve provided expert advice and assistance to hundreds of UK businesses that wish to cease trading and close down.
There’s no best option for every business that wishes to close. Our experienced team can look at your business’s financial and legal situation and recommend the most cost-effective solution based on your needs and priorities.
If your business is facing pressure from creditors and needs to close via liquidation, we can also help you to protect yourself as a company director.