How to dissolve a company in the UK
Dissolving a company is a relatively straightforward and inexpensive process. However, to close a company in this manner and have it struck off the Companies House register, the business must be solvent, meaning it can pay its bills. There are additional criteria that must be met, and specific steps must be followed to properly close down the business.
In this article, we will discuss all the requirements and explain the process in detail. By the end, you should have a clear understanding of how to dissolve a UK-registered company.
Dissolving a UK Company
Commonly referred to as company dissolution or strike-off, dissolving a company is an administrative process that leads to the permanent closure of a solvent business. It’s an inexpensive and straightforward procedure that can be carried out with the approval of the board of directors.
There are various reasons why you might need to dissolve a company. Perhaps the business is no longer viable, or you’ve decided to pursue other opportunities or retire. It could also be that you set up the company as dormant simply to protect a business name, and it is no longer needed.
Regardless of the reason, the company must meet the following criteria to be eligible for voluntary dissolution, as outlined in sections 1004 and 1005 of the Companies Act 2006:
- It has not changed its name in the last three months.
- It has not traded, engaged in any business activity, or sold any of its assets in the last three months.
- It is not threatened with liquidation.
- It has no ongoing payment agreements with creditors, such as a Company Voluntary Arrangement (CVA).
If the company satisfies all these eligibility criteria, the directors can approve the dissolution by passing a board resolution. This can be done either at a board meeting or through a written board resolution.
If you are the company’s sole director, you can pass the resolution on your own. If there are two directors, both must agree. For companies with multiple directors, a simple majority (more than 50%) must approve the resolution.
Once the decision is made, you must properly close down the business before submitting a formal striking-off application to Companies House.
Closing down your company before dissolution
The dissolution process itself is quite straightforward. However, closing the business in preparation for striking off can take some time, depending on your company’s circumstances. The preliminary steps you need to take are as follows:
1.Stop Trading
You must cease trading at least three months before applying to strike off the company, and also complete any outstanding orders and collect all payments due from clients as soon as possible.
If any trading or business activity occurs in the three months before submitting your application, it may be unlawful, and Companies House could reject your dissolution request.
2. Notify All Interested Parties
You must inform anyone likely to be affected by the company’s closure, including (where applicable):
- Members (i.e., shareholders or guarantors)
- Creditors, including banks, lenders, and loan guarantors
- Employees and workers
- Customers and clients
- Suppliers and service providers
- Landlords or tenants
- Local authorities
- Managers or trustees of your employee pension fund
- HMRC and the Department for Work and Pensions (DWP)
Notifying those who may have an interest in the company’s affairs is a legal requirement. This ensures they have an opportunity to object to the company being struck off before you begin the application process.
3. Manage Business Assets
Before dissolving your company, it’s crucial to handle all business assets properly. If not, any assets remaining in the company’s name at dissolution may become ‘bona vacantia’ (ownerless property) and automatically transfer to the Crown.
Business assets encompass:
- Land and buildings
- Equipment and machinery
- Stock and materials
- Intellectual property
- Shares held in other companies
- Cash and credit balances in business bank accounts
- Payments due from HMRC or other sources
Typically, you can distribute assets or their sale proceeds among the company’s members. However, you may need some funds to settle final bills and outstanding debts.
If you receive any assets or sale proceeds personally, you might be liable for Capital Gains Tax on the amount. Alternatively, if the proceeds exceed £25,000, HMRC may treat it as income subject to Income Tax instead.
Consider if you qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which could reduce your tax liability on these proceeds.
4. Pay Employees
If your company has employees, you must comply with redundancy rules and settle their final wages, including any accrued holiday pay and benefits. Some employees may also be entitled to statutory redundancy payments.
Notify HMRC of your cessation as an employer by submitting a final Full Payment Submission (FPS) or Employer Payment Summary (EPS) after the last payroll run, and subsequently close your PAYE scheme.
5. Settle All Outstanding Bills and Debts
You cannot dissolve a company with outstanding debts. Attempting to do so may lead creditors to object, halting the strike-off process. Ensure all business debts in your company’s name, such as loans, credit card balances, rent, supplier invoices, utility bills, staff wages, and final tax bills, are fully settled before applying for dissolution.
6. Prepare Final Accounts and Tax Returns
Submit your final annual accounts and Company Tax Return to HMRC, indicating that these are the last trading accounts and that the company is being dissolved. While filing with Companies House isn’t mandatory, it’s advisable.
For VAT-registered companies, cancel your VAT registration, submit a final VAT Return to HMRC, and settle any outstanding VAT liabilities.
7. End Any Contracts
Terminate any existing contracts or agreements the company holds with suppliers, service providers, utility companies, or landlords before dissolution. Review each contract for termination clauses and required notice periods.
8. Close All Company Bank Accounts
Before applying for strike-off, settle any bank fees, withdraw or transfer credit balances, and close all company bank accounts. Failure to close accounts will result in their freezing upon dissolution.
Ensure all transactions comply with standard rules. For instance, if credit balances include profits, consider declaring these as dividends before distribution to shareholders.
Leaving accounts open after dissolution renders funds inaccessible unless the company is reinstated on the register.
Apply to Companies House to dissolve a company
Once your business activities have ceased and your company meets the eligibility criteria, you can submit a striking-off application (form DS01) to Companies House. The form requires the following information:
- Company registration number
- Full company name
- Authentication from a majority of directors, including their forenames, surnames, and the date of authentication
You have the option to complete and file the DS01 form online or submit a paper application by post. It’s recommended to apply online whenever possible. The filing fee is £33 for online applications and £44 for postal applications.
If you prefer Startxpress to handle this process for you, consider our Company Dissolution Service. Our team of company specialists will manage all aspects of the dissolution process. Simply electronically sign the board resolution and application for dissolution, and we’ll take care of the rest. We also offer assistance and advice to help you navigate any challenges or issues that may arise. Discover more about our services here.
Disclosing the application to interested parties
Within 7 days of submitting an application to Companies House, you must provide a copy to all parties potentially affected by the company’s dissolution, which includes:
- Members (shareholders or guarantors)
- Creditors
- Employees and workers
- Managers or trustees of any employee pension fund
- Directors of the company who did not sign the application form
Failure to notify these relevant parties is a criminal offense, punishable by an unlimited fine or, in severe cases, up to 7 years in prison. Convicted individuals may also face disqualification as a director for up to 15 years.
What happens next?
Upon receiving your application, Companies House will verify its completeness, update the company’s public record with the information, and publish a statutory notice in one of these Gazettes:
- The London Gazette – for companies incorporated in England and Wales
- The Edinburgh Gazette – for companies incorporated in Scotland
- The Belfast Gazette – for companies incorporated in Northern Ireland
The strike-off notice will be published in The Gazette for a minimum of two months. This ensures that all concerned parties are informed of the company’s decision and have the chance to raise objections if necessary.
If no objections to the strike-off are raised during this period, the company will be dissolved and removed from the register. Companies House will subsequently publish a second notice confirming the dissolution and the cessation of the company.
For more detailed guidance on how to dissolve a company, visit GOV.UK. If your circumstances are intricate, it is advisable to seek professional advice from an accountant.
Can I withdraw an application to dissolve a company?
If you change your mind or if the company becomes ineligible for dissolution after submitting the form (but before the strike-off occurs), you must promptly withdraw your application.
You can withdraw the application online through your Companies House WebFiling account or by completing and submitting form DS02 by post.
Reasons that require withdrawing an application include if the company:
- Changes its name
- Engages in trading or other business activities
- Sells business assets for value, except those necessary for or related to the application (e.g., a telephone used for handling inquiries about the application)
- Becomes subject to formal insolvency proceedings
- Makes a section 900 application (a compromise or arrangement with creditors)
- Undertakes any other activities beyond those essential to:
- Make or proceed with the strike-off application
- Conclude outstanding business affairs related to the application (e.g., settling office premises costs while finalizing affairs before disposal)
- Comply with statutory requirements
The full circumstances requiring withdrawal of a dissolution application are outlined in section 1009 of the Companies Act 2006.
Failure to withdraw an application when a company no longer qualifies for strike-off is a serious offence, potentially resulting in an unlimited fine, imprisonment, and director disqualification.
Alternatives to company dissolution
Depending on your situation, opting to keep your company dormant instead of striking it off could be advantageous. This approach allows you to preserve your company name and gives you the flexibility to resume business activities whenever you decide, making it a suitable choice if you’re uncertain about your future plans.
If you have decided to close the company definitively, another option is a members’ voluntary liquidation, provided the business is solvent. This process necessitates approval from the board of directors, consent from at least 75% of the company’s members, and the appointment of a licensed insolvency practitioner as the liquidator.
If your company is unable to settle its debts completely, it is considered insolvent. In such cases, you cannot proceed with company dissolution or initiate a members’ voluntary liquidation. Instead, you must liquidate the company through one of the following methods:
- Creditors’ voluntary liquidation: Involves creditors when liquidating the company due to its inability to pay debts.
- Compulsory liquidation: Applied for through the courts when the company cannot meet its financial obligations.
For detailed guidance on these liquidation procedures, visit GOV.UK.
Keeping records after company dissolution
After dissolution, it’s advisable to retain your employers’ liability insurance certificate and other relevant documentation if your company has previously employed staff. This precaution safeguards against potential delayed claims that may arise in the future. Similarly, keep records related to any employee pension schemes.
If your business uses the VAT MOSS (Mini One Stop Shop) scheme, maintain VAT records for 10 years. You should also retain meeting minutes and company resolutions for 10 years from their respective dates.
For all other records, including bank statements, invoices, accounts, tax documents, contracts, employment records, and correspondence from HMRC, retain them for at least 7 years post-dissolution. This not only fulfills legal obligations but also supports the potential restoration of a dissolved company to the register within 6 years of strike-off. These records can also be essential in resolving disputes with former employees, suppliers, or creditors.
Even after dissolution, regulatory bodies like HMRC, the Insolvency Service, and Companies House may still conduct audits or investigations on dissolved companies. In such cases, you may need to produce specific records to assist in these processes.
You have the option to maintain business and accounting records either on paper or electronically. Generally, it’s acceptable not to retain original paper records if your chosen method captures all information from the document (both front and back) and allows you to present it in a legible format. However, it is often prudent to retain both originals and digital copies to ensure compliance and readiness for any potential audits or inquiries.
In conclusion, while dissolving a company in the UK can be a relatively straightforward procedure, it demands careful planning and adherence to legal requirements. Ensuring the company’s solvency, taking steps to settle obligations, and maintaining proper records are critical before applying for strike-off. Whether choosing dissolution, opting for dormancy, or pursuing other closure options, careful consideration of your company’s circumstances and professional advice can ensure a smooth and compliant process, protecting all parties involved and preparing for any potential future obligations or inquiries.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io!
Related Articles
Was this helpful?
1 / 0