What are all the steps to consider?
Regardless of the size of your business, there is far more to closing your company than simply shutting the doors and walking away. There are many processes to take care of, both legal and logistical, to avoid legal complications and consequences before you can say goodbye.
Whether your business is closing through a solvent or an insolvent winding up, we run through everything you must have in place before closing down a business for good, to ensure you get it done right.
1) Choose the best way to close your business
The way you choose to close your business will depend on whether the company can pay its bills – solvent, or whether it can’t pay its bills – insolvent.
If your company is solvent, you are able to apply to have the company struck off the Register of Companies. Alternatively, you can begin a members’ voluntary liquidation.
Typically having the company struck off will be the cheapest possible route to closure. However, this is only possible if the company:
- hasn’t traded or sold anything in the three months prior,
- hasn’t changed its name in the three months prior
- isn’t threatened by liquidation
- is free from encumbrances with creditors.
Only once the business is legally closed down can it be struck from the Register.
To close through members’ voluntary liquidation, gaining the benefits of entrepreneurs relief, you will need to:
- Want to retire,
- Step down from a family run business with no one to pick it up
- No longer wish to run the business; or
- Have sold the business, but retained the shares.
To pass a resolution for members’ voluntary liquidation you will need to make a ‘Declaration of solvency’ but before you can do this, you’ll need to review all assets and liabilities to ensure all creditors, including future and contingent liabilities, can be paid within the first year of liquidation.
If your company cannot pay its bills and is looking to close down, then the interests of any creditors involved will legally become a priority over those of the shareholders. In this case, you’ll be required to use the creditors’ voluntary liquidation process, whereby 75% of shareholders must agree to liquidation.
If shareholders don’t come to an agreement, then your company may be put through compulsory liquidation which is a Court order known as a winding up petition, if you do not pay the amounts owed to any creditors. This is particularly serious as it will mean the case is automatically referred for a full investigation by the official receiver.
2) Inform anyone affected by the closure
Before applying for liquidation or to strike off your company, you must first inform all interested parties. Failure to do so could lead to personal liability on the part of the directors.
You’ll need to inform HMRC of your closure plans, that you have ceased trading and in the interests of PAYE and National Insurance, that you are no longer employing anyone.
You’ll also need to inform all shareholders, creditors, employees, any directors who aren’t in agreement with the closure and managers of any pension schemes. This gives all parties a chance to object to the company being dissolved whilst there are outstanding debts.
It should also be noted that the government is bringing in new legislation to investigate the conduct of directors who dissolve companies with debts, which could lead to disqualification or personal liability.
3) Inventory and assets
All remaining inventory and assets will need to be sold. If the company is facing insolvent liquidation, you should seek independent advice from an insolvency practitioner who is likely to employ an appropriate valuation agent with professional indemnity cover. They will work with the you and the liquidator to ensure the best possible result is achieved for the company creditors.
In a solvent liquidation, it may be possible to distribute some of the assets of the company to shareholders in lieu of a cash distribution.
4) Settle outstanding debts
Once you have informed any creditors that you are planning to close the business, you will then need to pay back any amounts owed to them if you are able to do so. Settle outstanding bills with suppliers only once you have received any inventory you need before closure.
Banks may immediately deduct the amount you owe for loans directly from your business bank account, through the right of set off, so bear this in mind when choosing when to inform them of your business closing.
5) Pay employees and close payroll
When closing down your company, if your business employs any staff then you will need to make sure that they receive their final pay in full, including any remaining holiday pay, before the business closes. You may also wish to consider whether you will need to provide redundancy payments to eligible staff.
If the business is unable to pay staff their full entitlements and the company enters insolvent liquidation, the redundancy payments service will cover payments due to employees and salaried board members in the interim, making claims in the liquidation for the amounts they have paid out.
6) Finalise accounts
Lastly, you’ll need to finalise all accounts, apply for a Company Tax Return, pay all corporation taxes and settle any further tax liabilities. All final statutory accounts and your Company Tax Return must be sent to HMRC, stating that they are the final trading accounts and that the company will be shortly dissolved.
You must keep business documents such as banks statements, invoices and receipts for seven years following the company being struck off or liquidated.
Need help ensuring you close your business correctly? Been served with a winding up petition? Don’t panic, we can help. Get in touch with us today.