There are a lot of reasons someone would want to legally dissolve a company. Whatever the reasons you might have for closing your business, there are a few different methods available to you depending on the current state of affairs at your company.
Before we begin, we need to note that legal requirements for the dissolution of a company vary from country to country and state by state, so always take the time to look up the specific requirements where your company is located before taking action. If any complications make it unclear to you where your company is legally located, be sure to seek out the advice of a professional.
Continue reading to find out more about how to legally dissolve your company.
Closing Your Company
Dissolving a company involves having a company struck off Companies House which is the public register on which all official company information is presented. Sometimes it is referred to as dissolution or striking off. Once a company’s name is removed from the register, the company no longer legally exists.
Before choosing your dissolution path, you need to determine whether your company is solvent or insolvent. A solvent company is one where there are no debts, or there are debts, but these can be dealt with within twelve months. An insolvent company is one that cannot pay off the debt owed within twelve months.
Now that you know whether your company is solvent or insolvent, you can examine the different dissolution and liquidation options available to you. Please note that dissolution is only available to solvent companies, whereas liquidation is available to both solvent and insolvent companies.
No matter what you choose, it is important to remember that you are not alone. Almost no business stays open forever and freeing your time and energy up for other things can be wonderful and rewarding. You might even find closing your company has a positive effect on your health and relationships. You might find that you finally have space in your life to pursue the things that have deep meaning to you once your company is closed. And if all of this fails to comfort you, try to remember that some of the world’s greatest entrepreneurs have lost businesses before they succeeded.
1. Insolvent Liquidation
Dissolution is not the same thing as liquidation. Insolvent liquidation occurs when a company is unable to pay off what it owes and involves selling and extracting any assets so the profits can be used to pay off outstanding debts. If you’re thinking liquidation is the right path for you, you will need the help of a licensed insolvency practitioner.
2. Solvent Liquidation
There is also the option of solvent liquidation. This is also sometimes referred to as members’ voluntary liquidations, and this option also requires the assistance of an insolvency practitioner. This legal process involves the division and distribution of assets and funds among shareholders. People sometimes choose this option because it allows cash and assets to be extracted in a tax-efficient manner. The movement of assets such as property, vehicles, or stock out of a company and into an individual’s ownership can have complicated or frustrating tax implications. If this is your primary concern, a solvent liquidation is likely the right option for you.
3. Dissolution
To be allowed to dissolve your company you need to be solvent and meet a few criteria:
- No stock has been sold or traded in the last three months.
- The name of the company has not changed in the last three months.
- You are not threatened with liquidation.
If this is the right path for you, you will need to submit a form titled DS01, which will need to be signed by the majority of directors, or all of them if there are only one or two directors. The form is processed by Companies House and copies need to be sent to all notifiable parties. (This can include, but is not limited to, creditors, employees, and shareholders.) There is a digital option available for this route and the process will take about three months.
There you have it. Depending on your company’s debt situation and the tax implications of closing your business, you might want to pursue solvent liquidation, insolvent liquidation, or dissolution. This being said, no two businesses are the same and so no two dissolutions will be the same either.
There are people that can help you make the right choice for you and your business. If you are feeling uncertain, speak with an accountant or an insolvency practitioner. They will be able to give you the information you need to make the right decision given your particular situation.