Liquidating an LTD company is a process that requires care and accuracy. The necessary formalities and the options open to the business owner may look different depending on the company’s financial situation - particularly important is the company’s solvency, which determines which method of closing the business can be used. In this guide we will discuss all the aspects of liquidating companies in the UK, so you can understand how to carry out this process efficiently and in line with the applicable rules. Read on!
Summary & key takeaways
- How you close an LTD company depends on whether it is solvent.
- A solvent company can be closed by striking off or members' voluntary liquidation.
- The DS01 form sent to Companies House costs £33 online or £44 on paper.
- Before striking off, settle taxes, distribute assets and send final accounts to HMRC.
- You must keep business records for 7 years after the company closes.
What is company liquidation?
Liquidating a company means ending its business activity and dissolving the entity. It is a multi-stage process that requires not only a decision by the shareholders, but also meeting specific legal requirements, such as submitting applications to the appropriate institutions.
The process of dissolving a company can be voluntary or compulsory, depending on the financial situation and the shareholders’ decision. If the company is solvent, it can be closed through:
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applying to strike the company off the companies register at Companies House (striking off): closing a limited company this way is possible if it has not traded, sold shares or changed its name in the last 3 months, is not threatened with liquidation and has not entered into any agreement with creditors (e.g. a Company Voluntary Arrangement);
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members’ voluntary liquidation: a voluntary winding up of the company by its directors is an option you can use if you want to end the business (e.g. because you are retiring) and your company is solvent.
The situation is more complicated for insolvent companies. Here we distinguish two types of liquidation:
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creditors’ voluntary liquidation: a voluntary liquidation of the company involving the creditors, used when the company cannot pay all its debts and 75% of shareholders (by value of shares) agree to the liquidation;
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compulsory liquidation: if the company is insolvent, a director can apply to the court for a compulsory liquidation order - to do this, it is necessary to show that 75% of shareholders (by value of shares) agree with the decision and that the company cannot pay debts of £750 or more.
The company liquidation process - step by step
Striking the company off the companies register
Before the company is struck off, you must complete the necessary formalities to close it legally. To do this:
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If the company has employees: Make staff redundant in line with the rules and make sure they are paid what they are owed. Tell HMRC that you have stopped employing staff.
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Make sure the company’s assets are distributed among the shareholders before the company is struck off the register - any assets still owned by the company will pass to the Crown.
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Send the final accounts and Company Tax Return to HMRC. Pay the company’s taxes. If you are taking over the company’s assets, you may also need to pay Capital Gains Tax on their value.
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To strike the company off the register, send form DS01 to Companies House. The whole process also requires paying a fee of £44 (£33 for an online application). You must send a copy of the application within 7 days to all interested parties (including shareholders, employees and creditors).
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Notice of the application will be published in The Gazette. If no one objects within the following 2 months, the company will be formally struck off the register, which will also be announced in The Gazette.
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You must keep business documents for 7 years after the business closes.
Members’ voluntary liquidation
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Prepare a declaration of solvency, in which you confirm that the company is able to pay its financial obligations. The declaration must include the company’s and directors’ details, as well as a statement of assets and liabilities and the expected time for repaying the debts (debts must be repaid within no more than 12 months of the liquidation). The declaration must be signed by the majority of directors in the presence of a solicitor or notary.
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Within 5 weeks, call a general meeting of shareholders to pass a resolution on the voluntary winding up of the company and appoint an authorised insolvency practitioner.
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Advertise the resolution in The Gazette within 14 days.
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Send the signed declaration to Companies House within 15 days of passing the voluntary liquidation resolution.
Creditors’ voluntary liquidation
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Call a shareholders’ meeting to vote on a winding up resolution. The agreement of 75% of shareholders (by value of shares) is required.
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Appoint an insolvency practitioner, who will act as the liquidator responsible for carrying out the liquidation proceedings.
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Send the resolution to Companies House within 15 days.
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Advertise the resolution in The Gazette within 14 days.
Compulsory liquidation
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Complete the winding up petition, i.e. form Comp 1, and send it to the court together with a completed form Comp 2 and the shareholders’ resolution on liquidation. 75% of shareholders (by value of shares) must vote in favour of the liquidation.
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Pay the fees associated with the compulsory liquidation of an LTD company in the UK: filing the petition costs £2,600, the court hearing - £280.
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Once the petition is accepted, the court will set a hearing date. Before the hearing, you must place a notice in The Gazette (no later than 7 days before the hearing) and deliver a copy of the petition to your company. You must send a copy of the notice and confirmation of delivery of the petition to the court.
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If the court issues a winding up order, an official receiver will be appointed at the hearing.
Why is it worth considering liquidating a company?
The decision to liquidate a company can stem from various reasons. Shareholders often take this step when the business is unprofitable, when their life or business circumstances change, or when the company is not generating income.
Liquidating a company allows you to put its financial affairs in order and protect assets from creditors’ claims. It is also worth noting that a voluntary winding up can be more advantageous than a compulsory one, which can involve higher costs and more difficulties.
What do you need to know before liquidating a company?
Before deciding to liquidate a company, it is worth consulting a lawyer or tax adviser, which will allow for a reliable assessment of the company’s financial situation and a discussion of the possible steps. Working with a liquidation specialist will also give you confidence that you will meet your formal obligations and carry out the whole process in line with the applicable rules.
The PolAccount team has been advising business owners in the UK for years on tax matters and the day-to-day running of a business. If you want to find out more about our services and what we can offer your company, get in touch with us!
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