Closing a limited company

If you decide that you no longer want to trade, it may be time to consider closing down a limited company.

There could be a number of reasons why you may wish to do this; perhaps you a have accepted a full-time position as an employee, or maybe personal circumstances have forced you to give up work altogether. Whatever the reasons, it is important to follow the right steps when closing a limited company to avoid penalties, and to make sure that it is completely and permanently wound up and struck off.

Applying to close a limited company

Once you have made the decision to close your limited company, you will need decide which method is appropriate for your situation, your three main options are:

• Simple Strike of and Dissolution
• Solvent Liquidation
• Insolvent Liquidation

Simple Strike-off and Dissolution

This option is available to solvent companies that have ceased trading and satisfy all of the following conditions:

• Your company must not have carried out any business within the past three months
• The company must not have undergone a name change within the past three months
• The company must not currently be involved in any legal proceedings

If you satisfy these requirements, you can file a “striking-off application”.

Paperwork for closing a limited company

The striking-off application is known as the Form DS01. On this form, you’ll be asked to provide key pieces of information such as the company name and registration number. Once filled in, it will need to be signed by all company directors and filed with Companies House, accompanied by the £10 filing fee. A copy of the application to dissolve a limited company should be given to shareholders, creditors, and any other important parties.

If Companies House is satisfied with the application, they will update the status of the company on the public register, and publish the notice of the proposal to strike off the company in The Gazette, the UK's official public record. Provided there are no objections, the company will then be officially struck off three months after the date the notice is published.

You will also need to let HMRC know, as closing a limited company will obviously impact your tax liability. When looking at closing your company, you will need to examine the financials and settle all outstanding debts and business bank accounts. Any assets should be removed from the company and divided between the shareholders, as failure to do this can mean The Crown assumes ownership.

Solvent Liquidation

One of the key considerations when closing a limited company is whether the company is solvent or insolvent.

In short, this means whether or not the company owes debt and is able or unable to pay the bills. Closing a solvent company is a substantially easier process than closing an insolvent company. Your company will be considered solvent provided it meets all of the following criteria:

• The company has settled all debts and has nothing payable outstanding
• The company is not under threat of liquidation, and does not have any agreements in place with creditors
• The company has not traded or sold stock within the past three months

If the company is solvent then you can carry out a Member’s voluntary liquidation by completing a declaration of solvency (form 4.70 for England & Wales or Form 4.25 for Scotland) and having it executed by a majority of the directors.

At least five weeks later you can hold a general meeting so that the shareholders may pass a resolution approving the voluntary winding-up. The resolution must then be advertised in the Gazette within 14 days.

You can then appoint a liquidator to take control of the liquidation proceedings and file the resolution and declaration of solvency with Companies House (or the Accountant in Bankruptcy for Scottish Companies).

Closing down an insolvent limited company

If your company is insolvent (unable to pay its bills), you may begin a creditor’s voluntary liquidation process to wind-up and close down the business.

To pursue this course of action, a 75% majority vote from shareholders is required, after which a winding-up process can begin. A resolution can then be passed provided that a liquidator is appointed to oversee the insolvency and take charge of the company; if this is the case, the resolution must then be filed with Companies House within 15 days of the shareholders’ meeting. As with closing a solvent company, the dissolution must be advertised in The Gazette.

Following the passing of the resolution, a creditor’s meeting must be held within 14 days, and again, this meeting must be advertised in The Gazette. At this meeting, a summary of the company’s current financial status including assets and liabilities must be presented to all creditors and the liquidator. This summary is known as a Statement of Affairs. When all debts have been paid off under the supervision of the liquidator, the company can then be struck off three months after a final meeting is held to confirm all liabilities have been satisfied.