Everything directors need to consider
If you need to know how to close a limited company, there are several options available. The choice will mainly come down to where the company is at financially.
Also known as striking-off, dissolution is the formal action of closing a company down. It will cease to exist as a legal entity and is officially removed from the Companies House register.
It’s by far the cheapest option but it cannot be used if the business has any outstanding debt.
Another advantage of dissolution is that the company directors are also able to manage the procedure themselves and there is no automatic investigation into directors’ conduct.
The process usually takes between three and nine months however, and it can also be rejected by stakeholders or other interested parties for several reasons.
If the company is found to have any outstanding liabilities then directors may be held personally liable for those debts, and if any directors had taken fraudulent measures then the company could be subsequently revived up to six years after the dissolution date.
We have an easy-to-use calculator so you can see for yourself if dissolution would be the best option to choose to close your limited company.
Creditors Voluntary Liquidation (CVL)
If the business has large debts and no realistic way to clear them then a CVL might be the best option to close.
Directors will have the chance to purchase company assets after the liquidation along with the business name and premises but the creditors’ interests are paramount, as they ultimately will decide the best closure option to help them recoup most of their investment or lending.
A CVL is a formal legal process so it has to be overseen by a licensed insolvency practitioner. They will outline your initial options and will let you know what you need to do at each stage, working with you to achieve the best outcome for everybody.
Members Voluntary Liquidation (MVL)
The most straight-forward way of closing a company, an MVL lets shareholders release their assets and move on efficiently and effectively.
Like other company closure methods, it’s a legal process that has to be followed but it could progress from start to finish in a matter of days rather than months.
It’s the most popular method used by single-person contractors and companies and can have tax advantages for the shareholders too depending on the level of assets the company holds.
Sometimes a business doesn’t have to close for new management to buy it out and take over its running.
Any company can enter administration, which will give it a ‘pause-period’ where no debt enforcement action can be taken against it while the administrator looks to find a buyer for the company as a going concern.
If a buyer is found before entering administration, then the process would become a pre-pack administration.
Sometimes this can’t be done and the company has to be broken up and assets sold in order to pay back creditors. While always sad, it does have the advantage of legally bringing the company formally to an end.
Company Voluntary Arrangement (CVA)
It might not be the obvious choice for closing a limited company but a CVA is still an option.
If the company has significant debts and it’s impossible to pay them off all at once, then a CVA can be proposed to run whilst the company proceeds to wind down.
The creditors will receive an improved or full return on their loans or investment over time and it grants the company additional time to wind-up in an orderly fashion.
This option can also be appealing for directors wishing to pay creditors back as much as is possible and also leaves them in control of the company while it is being wound up.
The hardest part in deciding how to close a limited company is which method to use.
Once you’ve made the decision to close, or circumstances have made the decision for you then the first most important thing to do is get in touch with us.
We can arrange a free, initial consultation at your convenience to fully explore your options and what would be the best way for you to proceed.
We’ll then work with you at every stage, answering any questions you may have and being available to offer any advice you feel you need too.