Guide to dissolving a limited company

Except your business has served its purpose and you are just ready to move on to the next thing, company dissolution is never an easy decision to make. We know that not all businesses perform as expected and some even lay dormant for a long time.

Either way, if you are looking into dissolving your limited company or simply put, striking it off the Companies House register, you have come to the right place for the answer to the processes involved.

You should know that there are some strict rules to be adhered to when dissolving a company, otherwise, you risk being fined or prosecuted.

Here we go…

What does a company dissolution mean?

Company dissolution, also referred to as striking off your limited company from the Companies House register, is the process of ensuring the details about a company are completely erased from the Companies House archives.

Does dissolution mean the same as liquidation?

Dissolution and liquidation are different. A company can only be dissolved when it is solvent, i.e. when it has no outstanding debts and/or liabilities or can settle those within a year (12 months). Any company that does not meet that criterion can only be liquidated.

In other words, dissolution is the process of officially ending a company's existence and liquidation is the process of selling off a company's assets to pay its debts.

You should know that sometimes even if you want to dissolve your company, Companies House will say that you have to liquidate it. This is because there are some criteria that qualify your company for being dissolved or liquidated. To dissolve your limited company, the company must

• have neither traded, sold any stock, nor changed names in the last 3 months,
• not be threatened with liquidation, and
• not have any outstanding contracts with creditors.

If your company does not meet any of the above-listed criteria, then it can only be liquidated.

How to dissolve a company?

To dissolve a company with the Companies House is quite easy. Just adhere to the following steps and make sure to keep to the rules.

• Go online to the Companies House website and fill out the DS01 form. You can also download the form, fill it out and send it to the address on the form via post, only that the online submission is faster. Note that: the form must be signed by two-thirds of the shareholders if they are more than two.

You will pay £10 for the DS01 form and the money cannot come from the company’s account or it nullifies the ‘no trading for at least 3 months’ criteria for company dissolution.

• After submitting the form, you must also send copies to all interested parties within 7 days of submitting it to the Companies House. The interested parties are shareholders or members, employees, creditors, trustees of the pension fund, and any director who was unable to sign the form.
   
• Make sure to pay all employees their final wages or salaries as well as other creditors in full.
   
• Inform HM Revenue and Customs (HMRC) of your decision for company dissolution. You do this by filing your “final accounts” or “final statutory accounts” and the Company Tax Returns to HMRC, not Companies House.

Explicitly state in the filing that the company is getting dissolved and that would be your final reporting to HMRC. Closeout of the PAYE and National Insurance contribution scheme too. Deregister for VAT. Also, make sure to pay all outstanding corporation taxes and any other tax-related bills.

If your company had recorded a loss in the final year of conducting business, it is possible to claim terminal loss relief against profits made in the previous years on your final tax returns.

• You must distribute the company assets including monies (in-hand and in the bank) among the shareholders accordingly before the final dissolution of the company. If you don’t, the assets automatically become the property of the ‘crown’ and will only be returned to you if you put the company back together.
   
• If you have taken assets out of the company before dissolution, you will have to pay Capital Gains Tax on it unless the assets are worth more than £25,000 at which point you pay Income Tax.

You can get tax relief on this too through Entrepreneurs’ Relief which is worked out when you fill out the Self-Assessment tax return.

• Ensure to keep all company’s records for a minimum of 7 years after its dissolution, and employers’ liability insurance policy and schedule for 40 years if your company employed people.
   
• Closeout your company’s bank accounts and change or delete domain names for websites and emails.

How do I know my company has been legally dissolved?

You shouldn't worry about it because the Companies House will inform you if you have correctly filled out the DS01 form.

If you haven’t, you will need to make the necessary corrections. If you have, your request for dissolution will be published in your local Gazette with a window of 2 months for any objections from anybody. With no objections in that time frame, a second notification will be published.

It is at that point that your company is legally dissolved and officially struck off the Companies House records.

Is it possible to dissolve a company that has never traded?

Dissolving a dormant company takes the same process as one which had been trading. You simply fill out the DS01 form and follow other due processes.

How long does it take to strike off?

It takes at least three months for a company to be officially dissolved and publicly announced.

Conclusion

When you go through the right process and adhere strictly to the rules set out by Companies House and HMRC, dissolving your company is quite easy.