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Close a business

Make sure to follow the right steps when closing or dissolving your business


Close a business FAQs

  • How to close a business

    There are many reasons why you may want to close your business. You may have achieved what you initially set out to achieve, you may no longer have the time to run a business, or you may have run into financial difficulties. Regardless of the reason, closing a business is never an easy decision and you should make sure you take the necessary steps to make the process as simple as possible.

  • Prepare for the closure of your business

    Before taking any steps to start closing your business, you need to consider the specifics of your situation. Most crucially, you should decide on a strategy for how and when you will close your business. As businesses have lots of moving parts, especially if multiple stakeholders or decision-makers need to be consulted and involved, preparing for and finalising your business’ closure can take a while. To understand which different areas of your business you need to consider in relation to its closure, you may wish to review your business plan which should set out the key areas of your business.

    You should then map out a timeline of the different parties you need to contact and the paperwork you need to complete. Your timeline should include deadlines (where applicable) or timescales for completing each task. Which parties you need to contact depends on the specifics of your business and how it operates. 

    Potential steps to take include: 

  • Comply with your duties as an employer

    If you employ staff you have additional responsibilities (and employee rights) that you need to consider when closing your business.


    Generally, if you are closing a business that employs staff, you will need to make redundancies. Redundancy is a potentially fair reason to dismiss an employee which only applies in limited circumstances (eg if the employer stops undertaking the business for which a particular employee was employed). For more information, read Redundancy.

    The redundancy process varies based on the size of the business but should generally involve employee consultations. This process involves informing those at risk of redundancy (eg using an At risk of redundancy letter) and inviting them to a consultation (eg using a Redundancy consultation letter) to discuss the proposed redundancies. Employers must take care to carry out redundancy consultations with an open mind and to avoid discrimination. For more information, read Redundancy pooling and selection

    Special rules apply to situations where 20 or more employees will be made redundant in a 90-day period. For more information, see the Government’s guidance or Ask a lawyer.

    Any redundancies should be made in line with your business’ Redundancy policy. Once the proper redundancy process has been followed, us a Dismissal for redundancy letter to redundant staff go.

    For more information on making redundancies, read How to make someone redundant in a small business and Redundancy. As redundancies are a tricky area of employment law, it may be advisable to seek specialist redundancy advice.

    Consider practical steps

    When dismissing staff due to your business’ closure, you should also remember to:

    For more information on practical steps to take after making redundancies, read What to do when an employee leaves.

  • Consider your business structure

    The steps you will need to take to close your business will depend on your business structure.

    How do I stop being a sole trader?

    If you operate as a sole trader you are self-employed. The process of stopping being self-employed is easier and more straightforward than closing a business. Generally, you must inform HMRC that you are stopping being a sole trader. If applicable, you must also complete the relevant tax returns, make the relevant tax payments and cancel any VAT registration. For more information, read How to stop being self-employed.

    If you are unable to pay your debts as a sole trader (ie you are insolvent) you will need to follow an appropriate insolvency process. See ‘What if the business is insolvent?’ below for more information.

    How do I end a partnership?

    The process for ending a partnership depends on the type of partnership.

    An ordinary partnership can generally be dissolved at any time by any of the partners. Ordinary partnerships may also automatically come to an end if: 

    • they were created for a specific term or project which has come to an end 

    • a partner dies or becomes bankrupt

    • a partner leaves without someone replacing them and buying their share of the business

    A limited partnership can be dissolved in a way similar to ordinary partnerships. However, only general partners (as opposed to limited partners) can decide to dissolve a limited partnership. Further, the death or bankruptcy of a limited partner is not a ground for dissolution.

    A limited liability partnership (LLP) can be ended by making an application to have it struck off the register and dissolved. This cannot be done if the LLP: 

    • is insolvent (ie the LLP is unable to pay its debts)

    • traded or carried out any business in the 3 months before the application

    • changed its name in the 3 months before the application

    • sold anything in the previous 3 months that it would normally have sold in the course of business

    An application can be made using form LL DS01 which must be signed by the majority of members and submitted to Companies House along with the relevant fees.

    In all cases, the dissolution of the partnership must be made public (eg by writing to all customers and suppliers) and, depending on the terms of any partnership agreement, a Dissolution of partnership deed may be used to dissolve the partnership and distribute all assets and/or liabilities. 

    If a partnership is insolvent, an insolvency process will need to be followed. See ‘What if the business is insolvent?’ below for more information.

    For more information, read Ending a partnership.

    How do I dissolve a company?

    A private limited company (LTD) can be dissolved either by applying to have it struck off the register or by passing a resolution of members’ voluntary liquidation (MVL).

    To strike off a company, form DS01 must be signed by the majority of company directors and sent to Companies House along with the relevant fees. Note that a company cannot be struck off if it:

    • has traded within the last 3 months

    • has sold any stock within the last 3 months

    • has changed its name within the last 3 months

    • is threatened with liquidation

    • has any agreements with creditors (eg a company voluntary arrangement (CVA))

    A company can be closed by way of MVLs by the directors:

    • making a declaration of solvency, signing the appropriate forms in front of a solicitor or notary public, and sending these to Companies House (for English and Welsh companies only)

    • completing form 4.25 (Scot) and signing it in front of a solicitor or notary public and sending it to the Accountant in Bankruptcy (for Scottish companies only), and

    • calling a general meeting of company shareholders within 5 weeks to pass a special resolution for the voluntary winding up of the company and the appointment of a liquidator

    In both cases, the closure of the company must be communicated. If the company is to be struck off the register, a copy of the application must be provided to all those affected (eg shareholders and employees). For MVLs, the shareholder winding-up resolution must be advertised in The Gazette within 14 days.

    For more information, read Closing a limited company and follow our Checklist for closing your company.

    If a company is insolvent, an insolvency process will need to be followed. See ‘What if the business is insolvent?’ below for more information.

    Ask a lawyer if you have any questions about closing a solvent business.

  • Consider asking for repayment agreements

    If your business is experiencing financial difficulties, consider asking for different repayment arrangements (eg by requesting more time). Speak to your business’ creditors (ie the parties your business owes money to) and explain your situation. 

    Creditors may be open to negotiation if you explain that you want to make arrangements for the repayment of business debt and clearly set out how you wish to do this. Agreeing to a repayment plan with your creditors can help alleviate financial pressure on your business and can help prevent insolvency.

    Consider using a Letter proposing payment in instalments to offer to repay debt to a creditor in regular fixed instalments. Creditors can accept such an offer using a Letter accepting payments in instalments. Depending on the situation, they may ask you to sign a Loan agreement or Promissory note to set out the terms of the arrangement in a legally binding manner.

    For more information, read Repayment agreements.

  • What if the business is insolvent?

    If your business is insolvent (ie it has more liabilities, like debts, than assets) a different process will need to be followed to close the business. This will depend on your business structure.

    Insolvent sole traders

    If you are a sole trader, you will be personally liable for the debts of your business. As a result, if your business is insolvent and cannot pay its debts, you will need to follow a personal insolvency option (eg applying for bankruptcy or entering into an individual voluntary arrangement). For more information, read Insolvency.

    Insolvent partnerships

    Partners in most partnerships are personally liable for the debts of the partnership. Where all partners are individuals (ie not businesses), they can agree to bring the partnership to an end because they are unable to pay their debts. A joint application to be made bankrupt can be made to the court and the court will appoint an official receiver to wind up the partnership. For more information, read Bankruptcy process and Insolvency.

    Note that this does not apply to LLPs.

    Insolvent companies or LLPs

    Companies and LLPs are corporate bodies which are treated as separate legal persons (ie independent of their members). As a result, an insolvent company or LLP is personally liable for its debts (instead of its members). Generally, if a company or LLP is insolvent, those running it are encouraged to try different rescue mechanisms before closing the business. These include:

    • entering into a Scheme of Arrangement - a binding legal agreement between a company/LLP and its creditors that has been approved by the court. This is often used to implement a variety of rescue and restructuring measures (eg exchanging debts for shares)

    • reaching a company voluntary arrangement (CVA) - an agreement between a company/LLP and its creditors implementing a timetable for the repayment of debts. This is designed to help the business trade itself out of its financial difficulties

    • placing the business in administration - a ​​short-term insolvency mechanism allowing the business to continue trading whilst an administrator attempts to save the business from insolvency. Administration is generally an appropriate option if the business can be rescued but needs protection from any potential legal actions brought by its creditors

    If none of the rescue mechanisms work and the business cannot be saved, the business can be liquidated (ie wound up). If a company or LLP cannot pay its debts or if its liabilities exceed its assets the following may be used: 

    • a creditors’ voluntary liquidation (CVL) - this requires directors to propose liquidation and for shareholders to agree by passing a special resolution

    • compulsory liquidation - the closure of the company/LLP by order of the court. This applies if a creditor is owed more than £750, the creditor presents a written demand to close the business, and the business fails to otherwise agree to settle the debts to the creditor’s reasonable satisfaction

    For more information, read Insolvency, Liquidation and Insolvency in Scotland. You can follow the Checklist for closing your company to close an insolvent company.

    When going through the insolvency process, businesses (and/or their owners) no longer have ultimate control over the course of the business. Instead, this power passes to the appointed insolvency practitioner (eg the liquidator, administrator or official receiver). In other words, with the appointment of an insolvency practitioner, the business hands over administrative control to the insolvency practitioner and must take care not to interfere with their actions (eg by selling business assets).

    Ask a lawyer if you have any questions about closing an insolvent business.

  • Consider your existing contracts

    Closing your business will often involve bringing your existing agreements to an end or otherwise transferring them to another party. Before closing your business, you should speak to everyone you have a contract with - including suppliers, business partners and customers - and inform them of the business’ upcoming closure.

    In some situations, you may wish to use a Letter ending a contract to terminate or cancel an agreement with another business. Alternatively, you may consider using a: 

    • Novation agreement to end and exit an existing contract between your business and another party, and create a new contract on the same terms between this party and a new party (ie the new party takes your business’ place and will be subject to the benefits and burdens you were previously subject to)

    • Letter assigning a contract to transfer the rights and benefits of a contract from your business to a new party

    If you need to end a contract for a reason outside of your business’ control (known as a ‘force majeure event’), which is covered by a force majeure clause, consider using a Force majeure contract termination letter.

    Remember to check the contract you wish to cancel, as it may outline when and how it can be terminated. 

    For more information, read Ending a contract, Novating a contract, Assigning a contract and Force majeure.

  • Consider your stock and equipment

    Businesses will often own assets, such as equipment, vehicles and stock. Consider how you want to handle such business assets after the closure of your business.

    You may be able to sell the remaining business assets before you close the business (eg by holding a closing down sale or selling to competitors). Alternatively, you may be able to return assets to your suppliers or creditors to reduce any existing debt. 

    Any business assets that are not sold or otherwise used to clear business debts (eg because no debt needs to be cleared) should generally be divided amongst the owners (eg the partners or the company shareholders).

    Any money or assets left by a partnership, LLP, or company that have not been distributed will pass to the Crown under ‘bona vacantia’.

    Pay capital gains tax

    Whenever you sell an asset you must pay capital gains tax (CGT) on any profits you make on the sale. CGT is payable on certain chargeable assets which include business assets (eg land, buildings, plant and machinery). As a result, if you sell your business assets before closing a solvent business, CGT may become payable. Whether or not CGT is payable depends on the profits your business makes.

    Generally, CGT is payable on gains above the annual tax-free allowance. Depending on the asset that was sold, you may also be able to rely on certain reliefs to reduce the CGT bill (eg Business Asset Disposal Relief is available where all or part of a business is being sold). For more information, read Capital gains tax.

  • Consider your business’ premises

    If your business was renting commercial property to operate from, you will need to speak to your landlord about bringing your commercial lease to an end. Check your commercial lease document to see how it can be brought to an end. For more information, read How to terminate commercial leases.

    Alternatively, you may be able to sublet your business premises to another party. If this is the case, consider asking your landlord for a Licence to sublet and ask the new commercial tenant for a deposit, securing it with a Rent deposit deed. Read Subletting business premises for more information.

    You may also be able to assign your commercial lease using a Licence to assign. This will transfer your obligations under the lease to a new party. As with subletting, for increased security, consider asking the new tenant for a deposit and secure it using a Rent deposit deed. For more information, read Assigning a business lease.

    Once you are no longer operating from the business premises you should inform your local council and let them know that your business has stopped trading. When you no longer occupy the rented commercial property, you may no longer have to pay business rates.

    If you own the commercial property your business occupies, you should consider renting it out to a new business (eg using a Commercial lease) or selling it. For more information, read Rent commercial property or Ask a lawyer.

  • Make final payments

    One of the last steps to carry out before fully closing your solvent business is to make all final payments. These include:

    • paying any tax owed

    • making final rent payments

    • paying utility providers

    Once all necessary payments have been made, you should contact the bank the business has its business bank account with and close it.

  • Keep records

    Even after you’ve closed your business, you must keep certain business and accounting records, which HMRC may request to inspect. The records you need to keep and the duration for which they need to be kept depends on the business’ structure.

    Sole traders and partnerships (excluding LLPs) need to keep all records of:

    • all sales documents (eg Invoices and Purchase orders)

    • all business expenses

    • personal income records

    • VAT records (if the business was VAT-registered)

    • PAYE records (if the business employed staff)

    These records need to be retained for at least 5 years after 31 January of the relevant tax year (ie the last time a tax return was submitted for the business). For more information, read Accounting and bookkeeping.

    Private limited companies and LLPs need to retain more business records. In addition to the records sole traders and partnerships need to keep, companies and LLPs must also retain records including, but not limited to, details of:

    • business assets

    • liabilities

    • loans secured against the company’s or LLP’s assets

    • shareholder transactions (not applicable to LLPs)

    • a company’s statutory books (not applicable to LLPs)

    Company and LLP records must generally be kept for at least 6 years. However, certain records (eg Board meeting minutes and shareholder resolutions) must be kept for at least 10 years.

    Further, businesses that employed staff must keep records even after they close. These include records of:

    For more information on employment records to keep after closure, Ask a lawyer.

    Ask a lawyer for more advice on closing your business and/or visit the Government website.

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Legal guides

  1. Checklist for closing your company
    5 min read
  2. Closing a limited company
    4 min read
  3. Ending a partnership
    4 min read
  4. How to stop being self-employed
    4 min read
  5. Insolvency
    10 min read
  6. Administration
    6 min read
  7. Liquidation
    4 min read
  8. Insolvency in Scotland
    4 min read
  9. Redundancy
    4 min read
  10. Assigning a contract
    2 min read
  11. Ending a contract
    2 min read
  12. How to make someone redundant in a small business
    8 min read
  13. Redundancy pooling and selection
    4 min read
  14. Force majeure
    5 min read
  15. Novating a contract
    3 min read
  16. Advantages and disadvantages of declaring bankruptcy
    3 min read
  17. Varying a contract
    3 min read
  18. Bankruptcy process
    7 min read
  19. Misfeasance and insolvency
    3 min read

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