If you want to close your company fast, dissolution is often the recommended process. The other term you may have heard is ‘striking off’, which is the same as dissolving a business.
Dissolution can be a quick and clean way of removing a dormant company from the Companies House Register. It also avoids substantial costs; for example, in the case of liquidation, and a formal investigation into the conduct of directors.
There are special circumstances surrounding the dissolution of a business, and it is not open to everyone. Like all business insolvency matters, it can be complex; read on for more information about dissolving your company.
What is dissolution?
Dissolution, or the act of dissolving a limited company, is not a formal insolvency procedure. The process is sometimes known as ‘voluntary dissolution’ and is typically done when a company is dormant or no longer required.
A business’ director can request dissolution under Section 1003 of the Companies Act 2006; you will need to submit form DS01 to Companies House to strike off a company from the register and pay the £10 fee. It is also referred to as ‘striking off’, which describes how the business is removed from the Companies House register. However, the process is only permitted under certain specific circumstances.
The process of dissolution is not an alternative to liquidation, and any shareholders and creditors who may seek to revive the business can be investigated up to 20 years following the dissolution of the company. In addition, dissolution does not conclude any of the company’s contractual arrangements; any directors of the business can potentially be liable should the company be resurrected to the Companies House register in the 20 years following dissolution.
Another thing to think about is that an application for dissolving a business can be rejected. For example, any creditors of the business must be notified of the application, and they can reject it if they see fit.
I don’t want to trade any longer – can I dissolve my company?
In the case of retirement, or perhaps lack of interest in a business which has stopped trading, dissolving a straightforward company is the ideal solution. This is particularly true if the business is perfectly sound and solvent; there is no need to incur the costs of liquidation, no investigation into the activity of directors and very little publicity involved.
However, it is important that the process is administered properly to avoid any future issues with regulations or tax. If the company is dormant with no creditors, shareholders or assets, then it may be possible to dissolve the company simply by using the form from Companies House.
However, if the company has been trading recently and has debts, shareholders or cash and assets for distribution, a more structured procedure may be required. This could be in the form of a Members’ Voluntary Liquidation (MVL); this process can be done swiftly but it is not as simple as dissolving a business and will require the assistance of a licensed insolvency practitioner. If you have accumulated assets over £25,000, an MVL is also an effective tool for tax planning, for which you will need to seek advice from a professional tax adviser.
What conditions apply for dissolving my company?
There are some formal conditions that must apply for dissolution to be possible:
- The company must not have traded for at least three months prior to the application
- The company has no assets, property or cash
- Any creditors have been informed to request their permission to dissolve the company, and have been given three months to consider the request and to reject the application
- The company has not changed its name in this three-month period
- The company has not disposed of any property of assets, for example equipment or land
You should note that paying off any debts doesn’t always constitute trading, so you can usually still get your finances in order while making an application for dissolution. Ultimately, the best thing to do is to consult with an insolvency practitioner.
For more information on dissolving your company and for a free, no-obligation conversation with one of our friendly team, why not contact us today. We can help you talk through your worries and work out a plan which is right for your business.