Questions You May Have About Closing a Limited Company

The COVID-19 crisis has led to many businesses having to shut down. Many sectors suffered, especially the arts and entertainment sector and the leisure travel sector. According to reports, both sectors saw about 80% of businesses shutting down or pausing activities in 2020.

Closing down sign

photo credit: Newtown Grafitti / Flickr

Closing a company is a daunting task that requires sound discretion of all legal formalities and thorough precision. Regardless of why you want to close your limited company, there may be some questions on your mind about the process. This guide to closing a limited company will try to answer all the questions you may have about this concern.

Does Your Business Have To Be Solvent Before Closing It?

The first question that arises when considering closing your limited company is whether unpaid debt can be a concern. The answer is that there are different processes of closing out your company based on its debt situation.

What Is The Difference Between Liquidation And Dissolution?

Dissolution is when your company is debt-free, and you initiate the closure. On the other hand, Liquidation is when the company is unable to repay its debt and is forced to close. The process involves selling off the company’s assets to pay off the debtors before it becomes legally non-existent.

Do You Follow MVL Vs. CVL Processes?

Members Voluntary Liquidation (MVL) occurs when you pay off all your debt before closing the company. In this case, you can also expect to get the Entrepreneurs Relief tax benefit.

Creditors Voluntary Liquidation (CVL) occurs when you close your company when you cannot pay your debt. In this case, the shareholders and/or directors agree that they cannot pay the debt anymore.

Can You Strike Off A Company?

You can strike off a company if there are no assets to pay off the debt. This can be done by sending a DS01 to the company. You need to stop trading three months before doing this. You can invite the creditor to liquidate your company before it is stricken off the companies register.

What Is The Cost Of Closure?

The liquidation fee for an MVL can range from £3,000-£4,000 plus VAT. In addition, there will be a cost of disbursement, a search fee, and a bond whose value depends on your assets. The disbursement fee is about £250 plus VAT, and Bonds can be worth about a few hundred pounds. A Strike off costs even less, at only £8, but it is not recommended, as you will be unable to claim director redundancy.

In the case of a CVL, closure costs can range from £4000-£5000 plus VAT. The costs can go up if the case is complex. Factors that affect the fee are the number of creditors, the value of assets, and the complexity of closure. In the case of a CVL, you can claim director redundancy. This guide to closing a limited company can help you refer to when it comes to liquidating your company.

Can You Use These Assets To Restart A New Business?

You can purchase the assets of the current limited company into a new company. This process is called a pre-pack liquidation. This should be done before the formal insolvency procedure is initiated. The advantage of such a liquidation process is that the new company can start operations without previous debt.

Few businesses last forever, and you may be on the verge of closing your limited company. Depending on the debt situation of the company, the procedures differ. Therefore, remembering the information given in this guide to closing a limited company can be used as a guide before you initiate the closure process.


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