After starting a new business it is quite common for it not to be trading quite as well as you had expected. You may be struggling to generate sales, the idea may never have fully gotten off the ground, or business may also have simply run its course and needs closing.
If any of these situations apply to you, then the first step to closing your limited company is to completely cease trading, in order to stop making sales and incurring expenses.
You can then decide if you want to strike the company off and formally dissolve it, or hold the company as none trading for future use.
There are a number of ways your Limited Company can be closed.
Hold your company as non-trading
Cease trade and hold your company as non-trading if you think you could use it again in the future.
Although your company has ceased trade, it doesn’t necessarily mean you have to dissolve it. There are a number of reasons you may wish to keep it, such as:
to trade using the company again in the future
to sell the assets of the company in the future
to keep the company name and/or brand alive
to offset any incurred tax losses against future earnings
Your company will still need to file non-trading accounts and confirmation statements with Companies House, as well as accounts and tax returns with HMRC.
We can help you with this. Our fee is £234 + VAT per year to hold your company as non-trading, whilst filing all of the necessary accounts and returns.
Dissolve your company
Cease trade and formally dissolve your company at Companies House by striking it off.
In many cases a company can come to a natural end, and you may want to formally close it down if you see no future or reason for keeping it.
If this is the case, you can simply apply to formally strike it off at Companies House by filing form DS01, but it is very important that you follow company law when doing this.
The cost of filing an online DS01 form with Companies House is only £8, but it is extremely important that you file any outstanding Accounts with Companies House and HMRC before beginning the process. Otherwise HMRC may object to the strike off and stop it from being processed.
Who can apply to dissolve a company?
sole director, if there is only one
both directors, if there are two
majority of directors if there are three or more
A company may also be struck off the registrar if you don’t correctly file accounts and confirmation statements on time.
Your company must adhere to the following conditions to commence the dissolution process and file the DS01 form:
1. Not trading
The company must not have traded for three months or more before applying to strike off the company.
2. No name changes
The company cannot have changed its name within this three month period. If you want to change the company name you must do it before starting the three month waiting period.
3. No outstanding legal issues
The company should not be subject to any legal actions such as County Court Judgments (CCJ), Statutory Demands, Winding Up Petitions or Administration Petitions.
4. Inform creditors and shareholders
Under law, any creditors and shareholders must be informed of the closure, and sent a copy of the DS01 form.
If you have creditors, including HMRC, and want to strike off your company, we strongly recommend you speak with an Insolvency Practitioner before you take any action.
Take your company into voluntary liquidation if you have fallen into insolvency and owe creditors or HMRC money.
In some circumstances you may have been trading, but incurred debts that you are struggling to pay. If this is the case you can apply to voluntarily wind up the company.
You will need to appoint a licensed Insolvency Practitioner to do this. They will ‘liquidate’ any company assets, and use the proceeds to repay your creditors on a pro-rota basis.
It is important to understand that, if the business is insolvent, this results in a shift in your duty of care as a director. Instead of acting in the shareholder’s best interests, you must now ensure the creditors’ are re-payed in full, as quickly as possible.
If you do not act in the best interest of the creditors when liquidating your company assets, you can become personally liable for the debts.
There are three methods you can use to determine if your company is insolvent:
1. The cashflow test
Can the company pay its debts when they are due for payment? For example, do you have sufficient cash to pay salaries, rent, trade creditors, VAT or taxes on time?
2. The balance sheet test
Does the company owe more than it owns or are the company’s assets exceeded by its liabilities? If yes, then the company is insolvent.
3. The legal action test
If a creditor has obtained a County Court Judgment against you, this may demonstrate the company’s insolvency.
If you believe your company is insolvent you should take legal advice from a qualified insolvency practitioner as soon as possible and inform your designated accountant of the outcome.
Winding up order
A creditor takes your company to liquidation, via a winding up order.
If a creditor obtains a statutory demand greater than £750 against your company and it remains unpaid for more than 21 days, they may petition to wind the company up and force it into liquidation.
This is obviously a very serious position to be in and you should take legal advice from a qualified Insolvency Practitioner as a matter of urgency.
If this situation occurs you will need to update your dedicated accountant with the outcome of your meeting.