Very few companies last forever. One study showed that of the companies listed on the FTSE 100 in 1984, less than a quarter of them were still there three decades later.
What’s true for the bigger players is even more relevant to smaller businesses: ideas and ventures run their course, the market evolves constantly, and new opportunities emerge.
The upshot is that having to close down a company is very often part of business life. Sometimes it’s regrettable, but this doesn’t stop it from being the best way forward. Here, we consider when and how you can apply to have a company dissolved, with minimum hassle.
6 steps to dissolving your company:
- First, you’ll need to complete form DS01. This needs to be signed and dated by all directors if there are only one or two of you, or by the majority of directors if there are more than two. If you don’t fancy filling it out on paper, you can do this online via Companies House.
- Send the form to Companies House with the accompanying fee.
- Within seven days of submitting the application, you must inform any outstanding creditors (including any likely future creditors), the DWP where appropriate, HMRC, and any employees who are still owed money. (In reality, it’s best practice to settle any outstanding matters with these parties before you apply).
- You must also inform any company shareholders and directors who did not sign the application.
- The Registrar will publish notice of the proposed striking off in the publication, ‘The Gazette’, which is the UK’s official public record. This allows any parties showing interest to object to the dissolution.
- After a period of at least three months, assuming no objections have been received, the company is dissolved.
Applying for strike-off and dissolution: when is it the right thing to do?
To set up a company, you must register it with Companies House, and so long as you keep up with your reporting requirements, it remains an active company on their register.
To remove your company from the register you should also apply to Companies House – or have an authorised agent do it for you. This is called voluntary strike off and dissolution.
The downside is that this isn’t always possible, or for that matter, desirable. For example, it’s not possible to use the process as a way of drawing a line under any obligations the company may owe.
If your company has outstanding creditors and the only way to pay them back would be to sell your company’s assets, a process known as ‘creditors’ voluntary liquidation’ (CVL) may be the appropriate way forward.
In other situations, although the company may be capable of paying its debts, you and any fellow shareholders may agree that a ‘members’ voluntary liquidation’ (MLV) process is the way to go. This is where 75% of the company opt to dissolve a company by choice. Where there’s a choice between MLV and applying for strike-off, tax and financial planning considerations can be important. You should obtain sound financial advice before you make the decision.
Situations where applying for strike-off and dissolution could be appropriate:
Where the company is surplus to requirements. You might have started a company to exploit a specific product or idea. Once the venture has run its course, or where it turned out not to be feasible, that company may no longer be serving any useful purpose.
If you have stopped (or plan to stop) trading. It may be time to switch focus to a new venture, or you could have your eye on retirement. Either way, you’ve made the decision to bring this particular business to an end.
Strike-off and dissolution is appropriate where there is no realistic prospect of you wanting to go back and start using the company again. If you’re not sure about this, or if there’s an outside chance that you might secure investment for a venture in the future, for instance, you should also look closely at keeping the company ‘on ice’ as a dormant company. This alternative way forward is cheap, easy, and means you can keep the company name just in case you decide to start up again.
Legally, when can I apply for strike-off?
Your company must not have traded or carried out business in the three months prior to the application.
Your company must not have sold any property or rights where that property was sold in the course of carrying on trading in the three months prior to the application. For instance, selling off a warehouse would be acceptable in most cases, unless yours is a property development company.
You can settle your business debts in the three months before the application, but you can’t apply if you’re going through a liquidation process, or if you have a formal arrangement in place with your creditors for paying off your debts.
What should I do before applying?
Pay off the company’s outstanding creditors. When you make your application, you’re required to notify any existing or prospective creditors of your intention to have the company dissolved. Rather than dealing with the objections of these creditors, it makes much better sense to pay off your debts before you start the process.
Make sure you transfer all assets out of the company and close the company bank accounts. From the date of dissolution, any assets still belonging to the company will belong to the Crown.
A word of warning: if you fail to notify an interested party, or if you supply misleading information in your application, the range of penalties include disqualification as a director for a period of up to 15 years, fines, and in severe cases, imprisonment.
We’re here to support you for every step of your business journey, and sometimes that path includes closing a company in order to pursue new opportunities. Find out how we can help dissolve your company here.