So you’ve decided to close your UK business because it’s not working out. Various issues could arise when you dissolve a company in the United Kingdom, which may affect your liability, credit, and reputation.
Continue reading this blog for a specific guide on how to dissolve a company legally and minimize the risk to your personal assets.
What is company dissolution?
Voluntary dissolution means striking off a company by applying for official approval from Companies House to remove the legal entity name. After qualifying for the required criteria of a dissolved company, the business ceases to operate entirely.
Dissolution decisions are typically made when company directors wish to retire and there is no one to take their place; or a subsidiary whose name is no longer required; or when a business idea that proved unfeasible. Some dormant or non-trading companies also choose to apply for strike off. Furthermore, internal disagreements among core members about the company’s vision can result in a striking-off application.
Things to do before dissolving your UK company
Dissolving a company ordinarily undergoes complex processes to prevent remaining debts and losing business assets. Despite hurried efforts to shorten the dissolution time in the event of a pandemic, businesses are advised to follow standard procedures to reduce future risks.
Before filing for company dissolution in the UK, businesses should provide clear closure information to all parties involved, including:
- Members or shareholders of the company
- Employee pension scheme managers or trustees
- Any directors who were not notified of the dissolution
- Other organizations or parties with a stake in the company’s operations (e.g., HMRC, local authorities, government agencies)
Once the concerned parties have been informed, you can ensure official removal from Companies House without further legal issues by completing the following tasks:
- Reviewing your company’s conditions of application
Check that your company does not violate any of the conditions outlined in Sections 1004 and 1005 of the CA 2006 (condition of application for voluntary striking off).
For example, it has traded, changed its name, or been subject to insolvency proceedings in the three months preceding or following the application.
- Collecting outstanding receivable accounts
The company’s bank account will be frozen as of the date of dissolution; any credit balance in the account and any assets of a dissolved company will be transferred to the Crown. As a result, you should collect outstanding receivable accounts, close business bank accounts, and transfer your remaining assets to other accounts.
- Selling off existing inventory
Businesses can implement a liquidation sale. Otherwise, donating to charity is a recommendable alternative.
- Noticing business creditors
As a legal and contractual requirement, informing creditors about impending closure will clarify specific steps to finish the final payments.
- Fulfilling other responsibilities according to the law
Other tasks to complete before dissolving your UK company are as follows:
- Notifying customers and returning deposits or payments for contractual goods/services that have not been delivered
- Terminating the commercial lease
- Notifying employees of their final paycheck plan
- Settling all able-to-pay debts
- Paying sales taxes on the most recently purchased goods/services.
- Submitting payroll taxes and final income tax returns on time.
- Filling company confirmation statement to update business details
What can postpone your company’s strike-off?
Striking-off company registration procedures undergo meticulous examination before approval regarding unpaid tax liabilities, creditors’ debt, and legal proceedings. Specific circumstances to postpone company dissolution progress:
- Remaining unpaid bills with creditors
- Not satisfying conditions of application
- No dissolution announcement made to interested parties
- Legal action and other pressing actions against the company
- Changing from dissolution to bankruptcy
How to strike off your UK company?
You can apply for strike off as the company’s representative director in two ways:
- Submit form DS01 to the Companies House
- Close your company online through a portal
Be noted that you can only submit a paper DS01 form if you’re unable to use the online portal.
Before submitting the form, the majority of directors’ signatures are needed. As mentioned above, all the tasks regarding remaining debts, payroll, and interested parties should be prioritized to complete businesses’ liability before application.
The form that is submitted should accurately reflect the current business situation. Any offense will carry severe penalties and may result in prosecution.
After receiving the form, the Companies House will examine it thoroughly to guarantee eligibility. When confirming matching to all conditions to be dissolved, the Companies House will:
- Update the company’s information on the public record
- Send confirmation of receiving the application form to the registered address
- Publish news about the dissolution in Gazette (the UK official newspaper records) to allow objections for interested parties
- Place a copy version of Gazette news on the company’s public record
Gazette distributes the striking-off news weekly to three main regions, specifically:
- The London Gazette: notice companies incorporated in England and Wales
- The Edinburgh Gazette: notice companies incorporated in Scotland
- The Belfast Gazette: notice companies incorporated in Northern England
Companies House can legally dissolve the company after two months of publication with no objections. Concurrently, the Gazette will publish the second announcement to inform the non-existence of the business.
Alternative solutions for dissolving a company
For companies with out-of-control debts, the company can liquidate assets to solve this situation.
Compared to the striking-off approach as the cheapest way to close a limited company at £8 average cost (via an online portal), liquidation can result in a much higher cost of £5000.
Businesses can participate in the following liquidation types based on their unique circumstances:
- Member’s voluntary liquidation
This type of liquidation is commonly used by businesses as a voluntary way to have more liquid assets for future endeavors.
- Creditors’ voluntary liquidation
When a company is unable to pay its creditors, the directors will liquidate the assets of the company. The liquidation will be carried out meticulously in collaboration with their shareholders, creditors, and a liquidator.
- Compulsory liquidation
This type of liquidation is ordered by a court when your company is unable to pay its debts.
By doing this, you can temporarily stop conducting business while maintaining your brand’s name and recognition.
Set as bankruptcy
Bankruptcy frees individuals from unable-to-pay debts while offering creditors opportunities for repayment.
The Insolvency Service will evaluate the probability of the bankruptcy application.
The disparity in dissolution laws and procedures makes it difficult for directors to properly dissolve a business.
Aside from the detailed dissolution guide presented in this blog, businesses can seek assistance from professional striking-off and company restoration services to expedite the dissolution process and reduce future risks.
What records do I need to keep after my company has been dissolved?
Businesses are required to keep documents relating to employees and organizational dealings after legal dissolution.
Financial and transaction documents, business plans, and regulatory documents must be kept for a minimum of seven years.
Meanwhile, employee files related to liability schedules and insurance must be kept for at least 40 years after dissolution.
Due to the difference in laws and procedures across regions in the UK, the striking-off process can encounter multiple obstacles.
As a result, you should seek the assistance of a professional dissolution service to ease your confusion and get practical advice on the best way to dissolve a company.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
- What is company dissolution?
- Things to do before dissolving your UK company
- What can postpone your company's strike-off?
- How to strike off your UK company?
- Alternative solutions for dissolving a company
- What records do I need to keep after my company has been dissolved?
Get helpful tips and info from our newsletter!
Stay in the know and be empowered with our strategic how-tos, resources, and guidelines.