Dissolving a company, also known as striking off, is the formal process of closing down a limited company that doesn’t have any debts and removing it from the official Register held by Companies House. Once this process has been completed, the company has no legal entity and must stop trading. There are several reasons why you may need to dissolve a company and several questions that need answering before beginning the dissolution process.
Why You Might Need to Dissolve a Company
The process of dissolving a company is not suitable for every company closure, and certain requirements must be met. A company can be dissolved when it meets the following:
- Has not traded or sold off any stock in the last 3 months
- Has not changed its name in the last 3 months
- Is not being threatened with liquidation
- Has no assets or debts
Typical scenarios in which striking off is the suitable choice include when the directors are approaching retirement and have no further use for the company, when a company is formed but never gets going, or conflicts between the directors result in both parties parting ways. You may also choose to dissolve a company which is currently trading if you cannot see a future for the business model, providing the company has no assets or debts. If you are unsure whether your company meets the requirements, you are advised to seek assistance from Cosec Management Services like those offered by CRO, which can oversee this process on your behalf.
Is Dissolution the Same as Liquidation?
No, dissolving a company and liquidating a company are not the same process. To dissolve a company, that company must not have any outstanding debts. If your company has outstanding debts and you wish to close it, liquidation is the most likely route you will need to take.
Depending on the circumstances, a company can either be forced into or voluntarily enter liquidation, also referred to as ‘winding up’. Much like when a company is dissolved, it will cease trading and will no longer exist once it’s been removed from the Companies House Register. However, as the company has debts, its assets will be used to pay for those debts before it can be struck off. A licensed insolvency practitioner oversees this process.
Preparing to Close Down Your Company
If you have decided to dissolve your company, there are several things you need to do before the company can be struck off. As the list of responsibilities is quite extensive, you may wish to enlist the help of company secretarial services to ensure nothing goes unactioned. These responsibilities include:
- Distributing all business assets amongst shareholders. This must be done prior to making an application to dissolve a company. Any company assets remaining once a company has been dissolved become Bona Vacantia, or ‘vacant goods’, and by law, ownership passes to the Crown.
- Pay all employees their final wages and follow redundancy procedures correctly if this is required.
- Settle any outstanding Corporation Tax, PAYE, Nation Insurance, and other tax payments.
- Deregister for VAT and instruct HMRC to shut down the company payroll scheme.
- File final accounts and a company tax return with HMRC, stating clearly that these are final accounts due to the dissolution of the company.
- Pay any outstanding company debts.
- Close company bank accounts.
- Ensure all interested parties are aware of the impending dissolution. This includes: shareholders, creditors, employees, managers or trustees of employee pension funds, and any directors not included in the striking off application form.
It is important for companies, even those navigating dissolution, to comply with rules and regulations. Our direct Cosec services ensure you remain compliant with the law, no matter where you are as a company.
Applying to Dissolve a Company
If you have taken advantage of company schedule services like those offered by CRO, the application process for dissolving your company is included as part of this package. Otherwise, you will need to complete and send the DS01 form to Companies House.
The DS01 form will need to be signed by the majority of directors and should only be completed and submitted once all the matters mentioned above have been dealt with. In addition, there is a £10 fee payable, which cannot be made from a bank account belonging to the company that is being struck off.
Once the form has been submitted to Companies House, you will receive a letter informing you that the document has been correctly filled in, and the request will be published in your local Gazette. If there are no objections to the dissolution within three months, the company will be struck off and legally no longer exist. Another notice will be published in your local Gazette stating that the company has been dissolved.
What Happens if Someone Objects to the Dissolution?
Objections to the striking off of a company can be made by anyone, although a typical case would be an objection from creditors if you own them money. Any objection upheld by the registrar will block the dissolution. It is also valuable to know that even if your company is successfully dissolved and a creditor objects after the fact, they can apply for a court order to restore the company if you have been evading payment.
HMRC representatives work closely with Companies House and routinely check applications for striking off to ensure the necessary procedures have been followed. They, too, may raise an objection if something is found to be amiss.
You may even have to halt proceedings yourself for a number of reasons. For example, you will be obliged to retract your application if your company changes its name, continues to trade, or is made insolvent.
Disadvantages of Dissolving a Company
The disadvantages of dissolving a company are usually born from failure to follow the correct processes. This is why it is imperative to exercise caution and consider taking advantage of ad hoc secretarial services if you want peace of mind that everything is in hand.
The danger comes from providing false information in your application, whether deliberate or unintentional and failing to notify the relevant parties of the decision to dissolve the company. Penalties for these offences include fines, disqualification as a director, and prison in the most severe cases.
It is also worth noting that if you choose to dissolve your company rather than liquidation, you will lose your right to claim director redundancy. Again, this may or may not concern you, depending on your reasoning for dissolving the company. On the surface, dissolving a company is the significantly cheaper option, as liquidation proceedings can run into the thousands. However, through liquidation, a director may be able to access director redundancy, which could offset the cost of the liquidation
The decision to dissolve a company should be made on a case by case basis. In many instances, particularly ones where the company has been active, consulting a professional can be advantageous. Here at CRO, we don’t just take care of online company registrations but also help support your business through other processes relating to Companies House with our company secretarial services. Please contact us for more information about how we can help you.