The process of closing a limited company depends on whether it is solvent or insolvent. This is essentially the difference between the ability of the business to pay bills as they become due or not - but insolvency also applies to the state of having more liabilities than assets. For more information, read Insolvency.
Closing a solvent company
The cheapest way to close a solvent enterprise is generally to have it struck off from the Companies Register. In order to be able to do so, it must not have traded, sold off any stock or changed its name within the last 3 months and it must not be threatened with liquidation or have any agreements with creditors. An application form (DS01) must be signed by a majority of company directors and sent to Companies House and there is usually a small fee to pay.
Before applying to have your company struck off, all assets of the business need to be dealt with accordingly (eg close any company bank accounts), as any remaining assets will pass to the Crown upon dissolution. You will also need to make sure you announce your plan to any interested parties (eg creditors) and HMRC.
A copy of the application form must be sent to anyone who could be affected (eg shareholders, employees etc) within seven days. You may need to follow the correct procedure for redundancy if you employ staff and pay their final salary or wages. The request to be struck off will be published in The Gazette and, if no one objects within two months, the striking off will take place and your company will be dissolved, with a notice to this effect published in The Gazette.
The alternative way to close a solvent company that you do not wish to run anymore is to pass a resolution of members’ voluntary liquidation. To do this you have to:
- make a declaration of solvency, sign the appropriate forms in front of a solicitor or notary public and send these to Companies House (or the Accountant in Bankruptcy for Scottish companies) within 15 days of passing the resolution for voluntary winding up
- call a general meeting with shareholders within five weeks, pass a resolution for voluntary winding up and appoint an insolvency practitioner as a liquidator, and
- advertise your resolution for voluntary winding up in The Gazette within 14 days of passing the resolution.
Closing an insolvent company
A Creditors’ Voluntary Liquidation (CVL) must be used to close down companies that cannot pay their bills or whose liabilities exceed their assets. This is the most common type of liquidation and needs to be proposed by a director. A meeting of shareholders must be called and a 'winding-up resolution' agreed upon by at least 75% (by value of shares) of shareholders. The resolution must be sent to Companies House within 15 days and advertised in The Gazette within 14 days. An authorised insolvency practitioner also needs to be appointed as a liquidator.