Depending on the particular circumstances of the business, closing a limited company can either be a simple process or a more complex matter requiring professional guidance and assistance. With this in mind, we have gathered the essential information about the different methods you can use to close a limited company, including costs, permissions, timescales, and much more.
If you have any further questions about dissolving a limited company, leave a comment at the end of the blog and we’ll do our best to help.
How to close a limited company
If you decide to close your limited company, you will need to apply to Companies House to have it wound up and struck off the register. The process you use will depend on whether the business is solvent (able to pay its bills) or insolvent (unable to pay its bills).
If it is solvent, the directors can apply to Companies House to have it voluntarily struck off the register. Alternatively, you can start a members’ voluntary liquidation.
If your company is insolvent, the directors can propose a creditors’ voluntary liquidation process. This course of action will require at least 75% of the voting shareholders (by value of their shares) to agree to the closure by passing a winding-up resolution.
In certain situations, an insolvent company can be forced into liquidation by its creditors or HMRC. This is known as compulsory liquidation.
Striking off a solvent company
The easiest way to dissolve or close a limited company is to complete a ‘Striking-off’ application for Companies House. To be eligible, the company must satisfy all of the following requirements:
- has not traded or carried on any kind of business within the last 3 months
- has not changed its name within the last 3 months
- is not subject to any proposed or current legal proceedings
- has not made a disposal for value of property or rights
If your company meets these conditions, you must download and complete Companies House Form DS01. The form needs to be signed by a majority of directors and delivered to Companies House online or by post, along with the £10 filing fee.
Within 7 days of submitting the application, copies should be provided to all notifiable parties, including:
- company shareholders
- pension managers or trustees
- other directors of the company
- any person who becomes a notifiable party within 7 days of the application being made
If Companies House is satisfied with the application, it will display the information on the public register. Depending on the Companies House jurisdiction in which your company is registered, a ‘Notice’ will also be published in the Gazette in London, Edinburgh, or Belfast to confirm your intention to close the company.
The purpose of this official notice is to provide an opportunity for third parties to object to the proposed striking off. Provided no objections are raised within a 3-month period, Companies House will post a second notice in the Gazette to confirm that the company has been wound up and struck off the register.
Members’ voluntary liquidation of a solvent company
This process is available to solvent companies that do meet the criteria for the ‘striking off’ application. To dissolve a limited company by way of a members’ voluntary liquidation, the directors must declare that the business can pay its debts in full within 12 months from the start of the winding-up process. The following steps will be required:
- Companies registered in England and Wales should make a Declaration of Solvency. Companies registered in Scotland should request Form 4.25 from the ‘Accountant in Bankruptcy’
- Within 5 weeks, the company directors should propose a special resolution to voluntarily liquidate the company. This will normally require at least a 75% majority vote to approve the resolution. When the special resolution is passed, notice should be published in the Gazette within 14 days
- A liquidator must be appointed to take control of the business and oversee the winding-up process
- The liquidator must complete and submit Form LQ01 to Companies House within two weeks of their appointment
When the liquidation process is complete, the insolvency practitioner will call a general meeting of the creditors and members. A full progress report of the liquidation will be presented at this final meeting. Notice of the meeting should be advertised in the Gazette at least one month beforehand.
The progress report must be sent to Companies House within one week of the meeting, along with a Return of Final Meeting. The company will be dissolved within approximately 3 months of filing the progress report and Return of Final Meeting at Companies House, unless the court makes an order deferring the dissolution.
Creditors’ Voluntary Liquidation of an insolvent company
A creditors’ voluntary liquidation will be required if you wish to close a limited company that is unable to pay its bills. To start this process, a director should call a general meeting of the shareholders. A special resolution of the shareholders must be passed to initiate the winding-up process. The director(s) must then:
- appoint a liquidator to take charge of the company and oversee the liquidation
- send the resolution to Companies House within 15 days of the meeting
- advertise the resolution in the appropriate Gazette (i.e. London/Edinburgh/Belfast)
The company should also hold a creditors’ meeting within 14 days of passing the resolution. Creditors must be given at least 7 days’ notice of this meeting and it will also need to be advertised in the Gazette. A Statement of Affairs (summary of the company’s assets and liabilities) must be presented at the creditors’ meeting, and a copy should be given to the liquidator afterward.
The liquidation process will be completed when all assets (if any) have been converted into cash and paid to creditors in order of priority. The company will be struck off the register within approximately 3 months of the liquidator holding a final meeting.
Compulsory Liquidation by creditors or HMRC
If your company cannot pay its bills and you are unable to reach an agreement with your creditors, they can make an application to the court for a winding-up petition to have your company closed. It will be put into liquidation and its assets (if any) will be sold by the appointed liquidator.
If you are dealing with insolvency issues, we would urge you to seek professional advice as soon as possible.
How long does it take to dissolve a company?
Generally, it takes at least 3 months from the winding-up notice being advertised in the Gazette to dissolve a limited company, but the length of time can vary considerably if the process is complex.
How much does it cost to close a limited company?
Aside from paying outstanding debts and wages, there are various administrative costs associated with the closure of a company. The amount you will have to pay will depend on how the company is wound up:
- Striking off a solvent company – This is normally the cheapest option. You will be required to pay a £10 disbursement fee to Companies House when the striking-off application is submitted
- Members’ Voluntary Liquidation – You will be required to pay the liquidator’s fee, which can range from upwards of £1500 plus VAT. The total cost will depend on the complexity of the liquidation process. Many liquidators will quote a fixed price for their services. You will also have a pay a fee to the Gazette for advertising the liquidation of your company.
- Creditors’ Voluntary Liquidation – This is usually the most expensive way to close a company. The liquidator’s fee is based on the complexity of the process and the amount of work required. Typically, you should expect to pay around £3000 to £7000. If a company’s assets do not cover these fees, the directors may be personally liable for the costs
- Compulsory Liquidation. This is a type of closure that is forced by creditors or HMRC. The cost of issuing the winding-up petition is also paid for by the creditor, rather than the company, but any assets and finances belonging to the company will be seized by a liquidator and used to pay the creditors.
What permissions do I need to close my company?
To dissolve a limited company that is solvent, you must get permission from a majority of the directors. They will indicate their consent by signing the striking-off application that is then submitted to Companies House.
To dissolve a limited company by way of a members’ voluntary liquidation or creditors’ voluntary liquidation, a 75% majority of shareholders’ votes must be cast in favour of winding up the business.
If a third party wishes to force the closure of the company, permission must be obtained from the court by applying for a winding-up petition.
Can anyone object to a company being wound up?
Objections can be made to Companies House by any interested party, including shareholders, creditors, employees, directors, and clients. An objection can even be made by the company itself if the striking-off application is bogus. All objections must be in writing and should be accompanied by supporting evidence.
Do I need to notify HMRC if I want to close a limited company?
You will need to notify HMRC if you decide to dissolve a limited company. Before doing so, you should settle any outstanding debts that are due to be paid by or to the company and then close your business bank account(s). You must then tell HMRC that your company has ceased trading and is ‘inactive (dormant) for Corporation Tax purposes.
Your company will be required to submit a Company Tax Return and pay any outstanding Corporation Tax liabilities from the accounting period before the start date of the winding-up process. You may also need to pay Capital Gains Tax if you dispose of any business assets.
A final Company Tax Return and Corporation Tax payment may be required when the winding-up is complete. Directors may also have to account for personal gains or losses made on the disposal of assets and shares. These should be reported on their Self Assessment tax returns.
You must ensure that the company payroll is closed down. A final Full Payment Submission (FPS) should be submitted when running the final payroll, and you will need to pay any outstanding PAYE tax and National Insurance deductions by the given deadlines.
If your company is registered for VAT, it should be de-registered. A final VAT return must be filed and any outstanding VAT liabilities should be paid.
Do I need to tell HMRC my company has been closed if it never traded?
If your company has been dormant from the date of incorporation, it should be classified by HMRC as ‘inactive’. In such cases, the company will not be registered as ‘active’ for Corporation Tax purposes or any other tax liabilities like VAT or PAYE.
As long as the company has not received or spent any money during its lifetime, and no capital gains have been made from selling or disposing of any business assets, you should not have to pay any business taxes or file any tax returns.
However, we highly recommend contacting HMRC to confirm the status of your company to ensure no obligations have arisen as a result of closing the business. When contacting HMRC, you will be asked to provide your company’s unique taxpayer reference, so make sure you have this to hand before calling.
Can I re-open a previously dissolved company?
It is possible to restore (re-open) some dissolved companies by applying for a court order or by Administrative Restoration. If you wish to restore a dissolved limited company by court order, we strongly advise seeking independent legal advice.
You can apply to Companies House for a restoration if the company was involuntarily struck off – e.g. by the Registrar as a result of failing to file an annual confirmation statement or annual accounts. However, administrative restoration is not possible if the company was struck off voluntarily.