How To Close Down Your Limited Company
by James Green on 15/04/09 at 6:04 pm
In the UK it is remarkably easy and cheap to form a limited company. For less than £100, perhaps even less than £50, you can have a company formed in a matter of hours. This compares to the situation in many other EC countries where the costs can run into thousands and it can take weeks, if not months, to get a company registered.
However, if your business has come to the end of its life, either because you can’t rescue it or because you no longer want to keep it going, you will find that closing down a UK company can be far from simple.
Liquidation
The normal way to close down a company is by starting a process called “liquidation” or “winding up”. This is a legal process in which a liquidator is appointed to wind up the affairs of a company and at the end of the process the company ceases to exist. This process does not mean that all the creditors (those to whom the company owes money) will get paid.
There are basically three different types of liquidation:
- Members’ Voluntary Liquidation: this is when the members (shareholders) of a company decide to put it into liquidation and there are enough assets to pay all the debts of the company. The members appoint and pay a liquidator themselves (or out of the assets of the company).
- Creditors’ Voluntary Liquidation: this is when the shareholders decide to put the company into liquidation but there are not enough assets to pay all the debts of the company. The creditors appoint and pay a liquidator themselves (or out of the assets of the company if it has any).
- Compulsory Liquidation: this is when a court makes a “winding-up” order for the company to be wound up, usually on the petition of someone who is owed money by the company, although the directors may also apply for a winding up order, usually because neither they nor the shareholders are able or willing to pay the fees – which can be high – for a voluntary liquidation. The court appoints and pays for a liquidator but can recover all or some of that from the sale of any assets.
If your company is unable to pay its debts it is said to be insolvent and should cease trading or the directors may become liable for the debts. If you suspect that the company is insolvent you must take professional advice and may need to liquidate the company, although it may be possible for licensed insolvency practitioner or other business rescue advisor to negotiate arrangements with those to whom money is owed to keep the business trading. Note that being unable to repay shareholders does not make a company insolvent. They knew when they invested they could lose their money and are at the very bottom of the list of creditors who would only get paid after everyone else had been paid 100%.
So, take appropriate advice. However, there is an alternative to liquidation which I want to discuss next.
Dissolution
This is a simpler and cheaper method and is ideal for closing down companies which have no debts. However it can sometimes be used to close down companies which are insolvent – though this cannot be guaranteed.
In a typical case of a solvent company the steps would be as follows:
- The company should cease trading and carry out no further transactions, except those which are necessary to wind it up.
- Anyone that the company owes money to should be paid; otherwise they may object to the company being dissolved in this way. The company bank account should not be emptied or closed until all company debts have been paid. Any loans to or from any company directors or shareholders should be repaid.
- If any vehicles or equipment have been bought on any form of hire purchase, leasing or finance agreement, then the finance company should be contacted to establish the options for ending the agreement early.
- The company must apply to HM Revenue & Customs to (HMRC) have its VAT registration cancelled, using form “VAT 7” A final VAT return will need to be completed, and there may be a VAT payment due.
- If the company employs staff they should be issued notice and a final payroll run for them (bearing in mind that they may have redundancy payments due to them) and P45s issued. At some point the company will need to make a final P35 return of payroll information to HMRC.
- Any of the directors and the company secretary may wish to resign, though at least one director should remain in place to deal with the closure. Remaining as an unpaid director of the company should not affect their own personal taxes in any way.
- A final set of accounts will need to be prepared, and submitted to HMRC. However this is unlikely to be possible immediately after the company stops trading as there will be further expenses so a letter should be sent to the tax office informing them that the company has stopped trading, has no further taxable income, and will apply for dissolution in due course. Mention that final accounts will be forwarded in due course. If you do not do this then HMRC may object to the company being closed down.
- Any corporation tax should be paid from the company bank account. The company generally has 9 months from the close of business to pay this tax, but the company cannot be closed down until it is paid.
- Any money or equipment left in the company after all these expenses have been met should be paid out to the shareholders in proportion to their shareholdings. It may be worthwhile for the company to apply to HMRC to have such payments treated under Extra Statutory Concession C16. This treats all such final payments as capital gains instead of dividends and may result in less tax being due.
Once 3 months have passed since the business ceased trading the directors (or a majority of them) can make an application to Companies House to have the company struck off. You can get full details of how to do this from the Companies House website. There is a £10 fee and you can download all the forms free of charge.
If the company is insolvent then it still may be possible to use this process, however to do so you will need to get approval from all those to whom the company owes money by writing to them with a notice of intention to have the company dissolved. You have to confirm you have done this before Companies House will process the dissolution and if it later is proven that you didn’t write to everyone you could be guilty of perjury.
You probably will need advice on what to say in the letter but in general you need to explain that the company is insolvent, cannot pay its bills, and cannot continue to trade. Tell them that the directors want to dissolve the company but that if creditors object the company will have to go into liquidation and as there are no funds to pay for a voluntary liquidation one of them will have to petition the courts at their own cost.
Be aware however that even if trade creditors don’t object it is possible that HMRC will object if substantial sums of tax (Corporation, PAYE/NI or VAT) are due unless they can agree a repayment schedule with the shareholders or directors taking on personal liability. In this case, get professional advice before signing anything.
martin Harding
Dec 13th, 2009
I recently started a business with you called MEH Consutants Ltd. I wish to now close this down, i haver not used the company at all, as i was unable to secure work and have been taken on by another company.
Can you advise way forward to close this business down and the cost involved.
Regards
Martin Harding
James Green
Dec 16th, 2009
Hi Martin,
I have no recollection of setting up, or being involved in setting up any company up for you in the last 3 years or more.
Drop me an email to james@jamesgreenandco.co.uk and let’s see what can be done.
amanda maskell
Mar 3rd, 2010
If a ltd company was to close down but owed no money out and just wanted to shut its doors but still had money owing in, could they still chase those debts if they were no longer trading.
thanks
James Green
Mar 5th, 2010
Hi Amanda, strictly speaking once the company has been dissolved it cannot chase any debts due to it. However depending on the amount and type of debt owing it is possible to transfer legal title to the debt to someone else – normally the shareholders – which gives them the right to chase up the money. It isn’t too complex but you need to get the wording right. Contact me by email james@jamesgreenandco.co.uk to discuss more fully.
Monica
Mar 19th, 2010
What is the procedure (Dissolution preferred) if the limited property company owns and let out properties from loans from the Director/shareholder?
Can the properties be transferred to the Director at market value and the loan repaid in the accounts (without money transactions).
The properties are let on ongoing AST. Can we stop transactions into the company simply by giving the rent to the Director and not the company? At what point is the company dissolved?
Thanks
Thanks.
James Green
Mar 23rd, 2010
Hi Monica. We need to speak about this on the phone as it is too complicated to do justice to otherwise. Send me an email with a landline number (calling mobiles from the Isle of Man is damn expensive) and lets have a chat.
Chris Hepworth
Mar 29th, 2010
I have a limited company which is still trading and I wish to shut down because I want to do other things. I have four employees, do I have to go through a full consultation process or is telling them that I intend to close in three months and that they will get redundancy payments enough
Thanks
James Green
Apr 7th, 2010
Yes, you do need to go through the full consultation process unless the company goes into an insolvent winding up process when you might get away without doing this – though that isn’t always certain. The problem for you is that if you don’t go through the process you could be held personally liable for any compensation payments the staff might be awarded.
Tracy Lucas
Apr 8th, 2010
I closed my business in January as it was insolvent, my accountant wrote to all my creditors and I have heard nothing from any of them, however a debt collection agency has found me and are chasing me for a business debt that is 2 years old from another company that had gone into liquidation.
They say that even though I was a Ltd Company I am personally liable because it say’s Trading as on the agreement. Is this true?
Tanya Short
Apr 15th, 2010
I have a limited company in the construction industry I am the only director and only employee, of the business. Should I decide to close my business down due to the lack of work, would I as the director have the funds produced by the sale of the assets which the business owns. The business has no debts which would be outstanding.
Ginny
Apr 27th, 2010
I am so stressed so would be grateful for advice!
Our private limited company ceased to trade on 5 March 2010 and all creditors were notified on 12 March 2010.
The company has been trading for 12 years.
There are only 2 creditors of note. One is the rent due quarterly in advance, due 24 March for £7000.00 which we did not have the funds to pay.
I was advised by our accountant to pay the VAT demand (payable by end April) of £3900.00 and also his invoice of £2800.00 – his advice was based on his belief that VAT was a preferential creditor and must be paid and he would be unwilling to do our accounts without payment!
I have subsequently found out that the preferential treatment extended to VAT was removed in September 2003 – our accountant says ‘he was’nt aware of this’ !
As directors, my husband and myself, do we now find ourselves outside the protection of the private limited company ?
And am I now be liable for all liabilities personally as threatened by Big Expensive Law firm of the head leaseholder – a plc company because I gave 2 creditors preferential treatment?
We are the under lease holder with 10 months left to run on the existing lease with repairing obligations.
We have been good and prompt paying tenants for 12 years but find the current economic situation too onerous and trade was so bad in January 2010 that we found ourselves for the first time out of funds and unable to carry on trading.
We feel so vulnerable through no fault of our own – we relied on the advice of our accountant ……..
I thank you in anticipation.
Sicerely,
Ginny Avison
James Green
Apr 30th, 2010
You could well now be liable for the debts of your company. I was saddened but not surprised to read your comment. Not only does it seem that your accountant gave you wrong advice – for which you might have a claim against him/her – he/she also confused the issue of “preferring” one creditor over another with that of a “prefferential creditor” which is only applicable once formal winding up commences.
However, you should be aware that normally the only person who can apply to the courts to have you declared personally liable for the company debts is the liquidator or receiver and it is unusual for them to go that far. Not only that there are ways you may be able to remove the threat but I’d need to speak with you to get more detailed facts.
That said, you should also be aware that landlords do have the right to lock you out of their property and sieze any of the contents even if they don’t belong to your company. This includes customers or employees property.
Do contact me by email to arrange a time to speak. I offer a 30 minute free no obligation consultation.
Hjalmar Wincentzen
May 7th, 2010
On 12th Feb. 2010 I got a CCJ against a company that owes me money. On 7th March they applied to court to have the CCJ set aside and a Hearing was set for 22nd April. I went to court but they didn’t appear. Their application was dismissed and CCJ was enforced. Have now found out from Companies House website that the Company was dissolved on 16th March 2010 while this CCJ/Hearing was taking place. No one from the Company or on behalf of the Company wrote to me to inform me they were intending to dissolve the Company. I am £3,353.16 out of pocket. Can you advise me what I can do and how I can get my money?
James Green
May 10th, 2010
Interesting question. Technically on 7th March there was no outstanding CCJ but they must have applied for dissolution at least three months prior to the formal dissolution and in doing so the directors had a legal obligation to inform all their creditors and will have signed a declaration that they had done so. It therefore looks as if they can be criminally prosecuted and the dissolution reversed. That may not immediately help you get your money but it should then be possible to petition a court to make the directors personally liable for the debt. We can help you through this process if you wish. Please contact me james@jamesgreenanedco.co.uk to discuss.
stuart
May 10th, 2010
Hi,
I am a director of a dormant limited company. (not started up yet)
I have recently published a web page under a domain name different to my dormant company name. I have now been accused of copyright infringement images and logo on the recently published webpage.
Am I allowed to say that the recently registered domain with the offending page is a trading name of my dormant company, to remove the liabilty from my self (in case things get ugly and they decide to sue me) and then just dissovle my dormant company? or am I personaly responsible for the copy right infringment?
Kind regards.
James Green
May 10th, 2010
You would have to provide evidence that the domain was the property of the company not of you as an individual. This could be rather difficult unless you have receipts in the company name. You could claim to have bought and paid for the domain on behalf of the company but any court that hears such a case could decide they didn’t believe you.
Ten years ago I advised a guy who set up a company to promote some music concerts which were not a success. He booked an act before the company had actually been registered and even though the Judge and the plaintiff accepted his intention was to make the booking via the company the fact was that he didn’t and so he was held personally responsible for several thousand of pounds.
Stuart
May 11th, 2010
Thank you for your answer.
Also if I remove all alleged infringing images and then hand them over the similar domain name I registered can they still sue me even if I have never sold anything at all? Also can they make me pay their legal costs for writing to me? the funny thing was it was my intention to by in bulk off of the company that’s making all the allegations and demands!!
Kind regards.
James Green
May 11th, 2010
If you write to them apologising and saying that it had been your intention to purchase from them and offer to remove all the images and indeed to transfer ownership of the domain to them it would be very hard for them to take it any further. Say you didn’t understand that you couldn’t use the images without their permission as you were going to order from them anyway. I suggest that you don’t offer to pay legal costs but if they ask you to pay their “reasonable costs” and you would be advised to do so in exchange for a legal undertaking that the matter will go no further.
Failing that, for them to win damages they would have to prove to the Court that they suffered a real financial loss or, in some cases, a “loss of reputation”. The latter sounds unlikely if you haven’t actually been trading and at this stage the former seems to be fairly small (but their lawyers could charge a few hundred for writing letters and a legal undertaking). Also if you make a sensible offer to remove the offending site no Court would award them costs if they went further.
stuart
May 11th, 2010
Thanks for your time James this has really helped.
good luck to you.
Dawn
May 15th, 2010
HI
We had a limited company go into liquidation last year which is still going through the processes. My husband had resigned as director approx 8 months before. I then aquired some other work which would keep us a float but the customers required us to be a ltd company so my husband set up a new company with a very similar name to our last.
We have now been informed by the liquidators that we are breaking the law, which if we had of known we wouldnt have done it, but since we didnt its now a little late, however we were looking at stopping trading as are looking at different things. How do we stand, should we dissolve the new company to then stop any furthre problems?
Any help would be much appreciated.
Thanks
Dawn
Dawn
May 15th, 2010
BTW we do not owe or have any debts to the new company.
Thanks
Dawn
James Green
May 15th, 2010
Dawn, I think I can probably put your mind at rest. You say that your husband resigned as a director 8 months before the company went into liquidation. I assume then (though perhaps I shouldn’t) that there was another director still in office after your husband resigned.
In general a director remains responsible for actions taken – or not taken – for 12 months after they resign but it is unlikely that this would affect your husband unless someone is able to prove that he did something illegal. It isn’t an offence for which you can be prosecuted or made liable for just to be wrong in some decision. For example, Sir Fred Goodwin has taken the flack for the Royal Bank of Scotland debacle and some people have said he should answer in court. But Sir Fred did nothing for which he could be prosecuted. Firstly, he took appropriate advice from lawyers, accountants etc and having done so he persuaded his board to recommend to shareholders that they should take over ABN Amro Bank. This was put to the shareholders who agreed. It was of course the wrong decision – but why blame Sir Fred.
In the case of a private company the director or directors have a duty to consider all their options before taking a decision. If necessary they should get appropriate professional advice. However having done so they can choose to reject that advice. So if a director has two choices “A” and “B” and properly considers that “A” is the best choice but later it turns out that “B” was the better one then he or she cannot be held liable.
With regard to a “similar name” this is a difficult one to rule on without having more details. However if you have evidence – letters or emails for example – that clients pressed you to trade through a company rather than you letting one go bust and deliberately setting up another with a similar name to confuse people then that will be a help. Also in my experience judges are apt to consider that someone setting up a company with a name too similar to one that has gone bust or has lots of CCJ’s is actually disadvantaging themselves as they are unlikely to get a good credit report particularly with the same shareholders or directors.
So, your options. Yes you can dissolve your company by the methods explained in this article or you could just change the company name to one which is completely different to that of the bankrupt company. The choice is yours. A name change is simple to do and attracts a Companies House fee of just £10. You can download the forms from the Companies House website but if you need any help just let me know. Where necessary I am happy to give a free 30-minute consultation to people and it won’t take that long to advise you on this. Just let me have a landline number or Skype username and I’ll get in touch.
Darren Pescod
May 18th, 2010
Hi, we are ceasing to trade to ensure that all of our creditors etc are paid. As a Director (and 75% shareholder) I wish to make an offer to the company, at my perceived fair value for some of its assets to ensure that there is enough money for everyone to be paid in full – this includes websites etc. I have two other directors of which one is a 25% shareholder who will disagree with the offer that is made. if I offer fair value and 2 of the 3 directors (one being myself) agree to the fair price is this all we need to do or is there some structure and time frame we should follow to see if a better offer is forthcoming? How can I reslove the asset sale fairly and quickly as I would rather do it as a Director, or is it easier to step in as a shareholder?
Your response is eagerly anticipated.
regards
Darren
James Green
May 18th, 2010
Darren, there is the potential here for the minority shareholder to make some problems by claiming that you have a conflict of interest and are selling the assets of the company to yourself at less than the true value and thus potentially depriving him/her of cash.
The situation is potentially more complex because when it comes to a matter of conflict of interest the requirements for a company established under the 2006 Companies Act are different from those of a company established under an earlier act, such as the 1985 and 1989 Acts. Whilst the 2006 Act overrides some of the earlier “standard” or “default” regulations it doesn’t override any specific non-standard clause in your company’s articles of association, which will still apply unless you change them to reflect the new law.
It would be unusual for your old articles to override the then standard position on conflict in a way that would disadvantage you, but without the articles I can’t be certain. So, with this caveat the position is that since the 2006 Act came fully into force (October last year) it is possible for the board of directors to authorise a transaction where there is a conflict of interest – but (here is the sting) – you can’t vote (and neither can any other associated director such as a wife, parent chilled etc)! If the two other directors take an opposite view then either there will be stalemate or the chairman might, again depending on your articles of association, have a casting vote.
If that is a likely scenario then the only option you have is to do what you would have needed to do under the earlier acts and call an extraordinary general meeting to ask the shareholders to approve the transaction. In this case you can vote and all that is required is 50% so you are home and dry.
Personally I’d go down the route of calling and EGM or just tell the 25% shareholder this is what you will do if he doesn’t approve the transaction as a director.
Yvonne
May 19th, 2010
I would like to arrange a free half hour consultation in the first instance with you by telephone – could you let me know when and how to get hold of you. thanks
James Green
May 25th, 2010
Hi Yvonne, I’ve been travelling for the last week and just spotted your message. Email me james@jamesgreenandco.co.uk with a landline or Skype number and I’ll make contact to arrange a mutually convenient time.
Mr Cee
May 26th, 2010
I am the first time on this site and am really enthusiastic about and so many good articles. I think it’s just very good.
Always yours Mr Cee
Sarah
Jun 16th, 2010
Hi
I am owed £48k by a limited company – I deposited £60k into the business in 2004 by way of a loan for 12 months. I continued to receive interest, however requested the capital back in 2007. After obtaining a ccj and thomlin order I did start receive some capital and continued interest – albeit in small amounts. A couple of weeks ago I received a text message advising that the Limited company had ceased trading and to contact their accountants – who advised me that they knew no more than I did – I haven’t received any further communication at all. I have tried to contact the Directors by letter and phone but have received no response.
Can a Limited Company just cease trading whilst still owing money ?
Sarah
Gary Field
Jun 16th, 2010
I own 50% shares in a limited company. My business partner owns the remaining shares. We’ve recently had a falling out and we have agreed to go our separate ways. We have enough cash in the bank to satisfy all debts so I’m guessing a Dissolution would be the cheapest and easiest method for us?
My partner however is continuing to use the company for business development and other activities, without my consent. I have stressed my very strong desire to close the company, however my partner refuses to cooperate. I feel very exposed as a director however I don’t know what to do about it. Can you help? I’d like this company closed ASAP.
I look forward to hearing from you
Gary
george
Jun 26th, 2010
Hi, have a limited company that is no longer viable. no debts, no vat issues. Want to get rid of it, because the first year accountsare due and the company has no money to pay it. Also, my “wage” is also not paid. few assets in computers and bits. What type of liquidation please ans what costs would be required.
Wordpress Themes
Jun 30th, 2010
Nice fill someone in on and this enter helped me alot in my college assignement. Gratefulness you for your information.
Dave Bridgewater
Jul 1st, 2010
Hi
I set up a limited company in October 2009 and I am closing it down because it is not making any money. I have not traded for the last 4 months. I have only turned over just under £2000 breaking even. I should not have set up as a limited company but followed advice from others. I have closed the company bank account (as told to do so by an accountant) then the accountant wanted alot of money which I can’t afford to prepare my accounts and do the corporation tax (if I owe any) Could I do this my self? I need to know when to get the company struck off at companies house, what do I tell the tax office and do I still have to send them the annual report/accounts. The company has no debts or assets, no property etc so I hope it would be quite simple to close. Any help would be very welcome!
Kind Regards
Dave
simon
Jul 2nd, 2010
hi i am a joint director in a company with a 50% share and due to a difference in oppinions for the last 12 months it is now becoming unworkable.
Can i request to the other director that the company be just shut down
our only assets are things like training guides as we are a training company.
And what about the business bank account ect.
Kay
Jul 5th, 2010
Hello
Firstly I thought I was the only one going through the dilemmas of whether to close a business or not but reading the various comments it makes me feel less of a failure.
I am a director of a private limited company (pub/restaurant) the economic climate has hit us like a freight train. From never needing an overdraft facility we have quickly reached our maximum and the bank has refused to increase it slightly to avoid the excessive charges, hence a vicious circle. I am at a loss as to what to do next. I have personally paid bills to keep the business afloat but cannot sustain this indefinately. I have written to our mortgage lender to ask for interest only, reviewed staffing, suppliers and utilities but not sure of my protection in the event of these measures not being sufficient.
The mortgage I hold is both on the business premises and a second charge on my home. What protection if any do I have as a limited compnay and what would you advise my first steps to be ?
Totally stressed and need to feel in control !
Mark
Jul 8th, 2010
Hi there,
Your advice on this page has prompted me to ask you a quesiton or seven
I am an IT contractor who traded for 11 months through a ltd company. I have not as yet had to file account (due in 4 months) and have not as yet paid any Corp Tax.
I know that (est) my tax bill will be around £18k for those 11 months and, because my contract was cancelled and I couldn’t find work quickly, had to feed the kids and pay the mortgage with the money I’d set aside for the taxman.
I am now back in work, trading through a new ltd company (different name etc) although the rate is just over half what I was earning.
I have no idea how I can pay the corp tax.
On top of this I received a letter recently that Companies house were due to strike my ltd co off the register at around the 20th July.
When I called HMRC they tell me I owe them nothing, but this is prob because they don’t know anything about the company really.
To make things even more complicated, I ran the ltd company from my personal bank account (I know, I know).
Is there anything I can do or am I destined for a few years inside?
Gerry Riedle
Jul 9th, 2010
Excellent blog. Can I return to the question and answer to Amanda of March 3/5? Can a legitimate assignment of alleged debt to a dissolved company be made months after strike-off and, if so, would it require a specific form of words?
Gordon Soper
Jul 13th, 2010
We want to dissolve a small Ltd company, no longer tradiong with no debts but a reasonable cash balance which is to be returned to the shareholders. It is VAT registered. Are there any published guidelines to take us through the process?
regards
Gordon Soper
Vincent
Jul 16th, 2010
I am 100% shareholder of a UK Ltd company established Nov 2007. The company never really made any considerable profit and so I decided over the last month to close everything down.
However the company has made substaintial loss this year while selling all its stocks at clearance prices and finds itself unable to pay the shareholder (myself) around £25k and VAT of around £19k.
I paid off all other creditors since beginning of 2010 as they came due well before VAT became due. VAT is due to be paid end of July2010. I am concerned that HMRC may chase me up personally for the £19k.
What is your view about the above and the cheapest way of closing down the company?
Maureen
Jul 22nd, 2010
Just discovered this site and would be most grateful for your advise. I closed my small shop selling ladies clothes in Feb 2010 after 22 months of trading as it was making a loss. It was set up as a limited company with me and my husband as directors but only myself employed in the shop. The only people we owe money to is the water company (£200). We had no toilet, and only 1 tap led through from the pub who own the shop premises. We had paid water rates from renting the shop but stoped when we closed. They are now chasing me for the £200. As it was a Ltd company am I personaly liable to pay this outstanding amount?
Truly hope you can help
Best regards
Maureen
John
Jul 24th, 2010
Hi I own a small 20 % of a Ltd company. However after a fall out with my friend and business partner who owns the rest of the shares 80% .she is saying I hand back the shares which she had given to me.
She had the business for 5 years and got into trouble. I came along and after 2.5 years of non stop work have built it to be pretty successful. My question is can she ask for the shares back? If so where do I stand.
As If i just said, yip here is the paperwork signed I am out of a job. I look forward to your advice.
sam
Jul 28th, 2010
Hi my partner shut his Limited business down in april this year. He owed hm rev £12,000.00 but had to cease trading as he had no more work coming in. His company had got no funds and also no assets could they come after him personally for the outstandig monies?
regards
Sam