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Should I dissolve or liquidate my limited company?

Should I dissolve or liquidate my limited company?

One of the questions people frequently ask us is how to close a limited company?

It’s important to remember that while this may appear to be the most logical solution for a struggling business, other options are available.

As a director, you may prefer to keep trading if possible, and simply closing it might not achieve what you wish to accomplish.

If most directors have decided to close the company, here are a couple of alternatives that you should first consider.

What are my options for company closure?

Dissolution (also known as a Company Strike Off)

The cheaper of the two options, dissolving your limited company, will allow you to retain control and ensure unnecessary costs are incurred.

Choosing the Strike Off process means you are not required to give third parties intrusive access to your business operations and the personal affairs of you or any other directors.

A Strike Off will have no lasting negative reflection on you as a director if correctly performed.

Liquidation

When a business finds itself in too much debt to recover through recovery procedures such as financing, administration, or a Company Voluntary Arrangement (CVA), it may be that a Creditors’ Voluntary Liquidation (CVL) is the only viable course of action.

Limited company liquidation is the more intrusive and more costly process, which will essentially remove any authority of a director.

All control of the process and the business concerns are overseen by an appointed Insolvency Practitioner (IP).

When your company is in liquidation, no legal proceedings can be taken against it. Providing you have no personal liability for your company’s debts, your creditors will be unable to take any further action against you.

A director who has previously liquidated a company can, in future engagements, be viewed as a higher investment risk, potentially affecting their ability to perform business in the future.

What is a Company Strike Off?

When a limited company is removed from the Companies House register, it is known as a ‘Strike Off.’ There are two types of strike-offs – a Voluntary Strike Off and a Compulsory Strike Off.

Once a company has been through the Strike Off process, it ceases to exist and cannot trade, make payments or sell assets.

A Voluntary Company Strike Off is different from liquidation and is also known as dissolution. It happens in entirely voluntary circumstances and is a common way of closing a limited company.

To qualify, the company cannot have traded, changed its name, sold assets, or engaged in any activity unless it is for the purpose of striking off in the previous three months.

A company cannot be wound up if it is currently in administration, subject to a scheme of arrangement or CVA, or has a receiver or manager appointed over its property.

What happens to directors during the Dissolution process?

Once the notice is published in the Gazette by Companies House and three months have passed without any objections from creditors, the company is officially dissolved and ceases to exist.

A second notice is then published in the Gazette confirming it has been resolved.

Be extra careful that no cash or assets exist at this point. Otherwise, they become the legal property of the Crown.

What are the advantages of Dissolution?

  • Your dormant business will be quickly removed from the Companies House Register.
  • You will avoid having to pay for liquidation, fees, and expenses.
  • You will avoid formal investigation into the conduct of directors, which is required in receivership or liquidation.

Are there any disadvantages to dissolving my company?

There can be severe consequences if you provide any false information (deliberately or otherwise) during your application or fail to notify an interested party of your decision to dissolve. This can lead to disqualification as a director, a considerable fine, or imprisonment in extreme cases.

If any creditor believes your business has not been closed down through the correct channels or has evidence to back up another reason for arguing against the closure, then they can appeal for your business to be restored to the Companies House register.

If substantiated, this would allow them, and any other outstanding creditors, to chase your company for any unpaid debts.

(Check out this post if you want to learn more about how to dissolve a company.

It’s essential first to seek professional advice, so contact us today. Our initial consultation is FREE. Here we will assess the viability of the business and offer advice on appropriate strategies.

We will also advise on the solution options available concerning your specific situation and requirements. These solutions are wide-ranging, cost-effective, and flexible.

We can talk you through all of your options and find you the right solution

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