How to close a ltd company?

The first step to closing a company requires determining whether it’s solvent or insolvent. But, what comes next? We’ll break down the process so that you have all the information needed to close a Ltd company. 

Signs it’s time to close a Ltd company

It’s a tough decision choosing to close down a company that took time, money, and effort to set up. While we all dream to see our business succeed, the reality is that sometimes they don’t. There are situations when closing down the Ltd company is inevitable, including:

• Not growing any further 
• Failure to break even
• Friction between company departments
• Returning to full employment 
• Voluntary winding up
• Making the company become dormant 
• Reaching retirement age
• Opting to become a sole proprietorship 

How to close an insolvent Ltd company

A company which is insolvent can’t clear its debts. Closing it requires professional assistance from insolvency practitioners. We recommend a Creditors Voluntary Liquidation (CVL) as the best way forward in this situation. 

It's a voluntary option for company members to initiate after releasing the company’s financial problems beyond the point of rescue. Placing a company under CVL takes about 14 days and completing the liquidation process is from six to 24 months depending on the company size. 

How to close an insolvent Ltd company with debts

Closing an insolvent limited company with debts requires applying for a CVL and holding a creditors’ meeting within 14 days of passing the resolution. Creditors are given notice for at least seven days advertised in the Gazette. 

During the meeting, credits are given a statement of affairs summarising the company’s assets and liabilities. The summary is also given to the liquidator. The company is struck off within three months after the liquidator has held a final meeting and paid creditors. Money for paying is from converting all company assets into cash. 

How to close a solvent Ltd company

Voluntary liquidation helps close a company in a tax-efficient manner. Another option to close a company that hasn’t traded for at least three months is through a dissolution or strike off. It’s the cheapest and quickest method that requires filling out some forms and paying a small fee.

The business owners must also notify the Companies House to have the company removed from the official register. 

Closing a solvent Ltd company by dissolution

It’s also possible to dissolve or strike off a company with assets and without debts. It requires applying to the Companie’s House for voluntary winding up for it to be struck off the official register. 

The company must meet the following requirements

• Not having changed names in the last three months
• Doesn’t have agreements with creditors
• Has no threat of liquidation 
• Hasn’t traded or sold stock in the last three months
• Lacking existing debts

Voluntary liquidation of a solvent company

If dissolving a solvent company isn’t an option, consider voluntary liquidation. This is appropriate in the following situations:

• Director’s decision to retire
• Owner stepping down and no one else wants to run it
• Need to pursue another career path
• Releasing assets from the company in a tax-efficient manner 

How to close a dormant Ltd company or one that never traded 

Dissolution is the best option to close a company that never traded or is dormant. Company directors submit a strike-off application using the DS01 form. After advertising in the Gazette and the three months objection period elapses, the company is struck off and ceases to legally exist. 

An objection may arise when attempting to close a solvent company with outstanding debt. The Companies House will then reject the dissolution application. 

What are the responsibilities before closing a company?

After making a final decision to close the company, there are responsibilities to take care of first. Informing all concerned parties including the HMRC, bank, insurance company, and creditors is very important. 

Equally important is to notify the HMRC to deregister the company from VAT payments. The inspector of taxes for the company’s payroll also needs notifying about the company’s closure. 

It’s very important to pay off all debts and salaries. Company closure is only possible after ensuring settlement of all outstanding liabilities. Failure to settle these responsibilities may get the company declared insolvent. Any remaining assets are liquidated to pay off all liabilities and the final dividends to shareholders.