How to Close a Limited Company in the UK

Learn the various ways you're able to close a limited company in the United Kingdom.

Updated: June 5, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Rebecca Goodman

Edited By

Rebecca Goodman

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There are plenty of reasons why you might want to close your company, it may still be doing well but you have decided to explore a different business model or idea, or it could be insolvent and need to be legally dissolved.

In this article, we're going to be taking a closer look at all the information you need to close your limited company successfully, aiming to break the overall process down into a few manageable steps.

There is also plenty of legal jargon that can leave you confused if you're unfamiliar with the terms, so we'll try to address a few common phrases you might hear when closing your company, such as Companies House, members voluntary liquidation, and creditors voluntary liquidation, for instance.

Understanding your company's financial situation

Kicking things off, the particular reason why you're closing your company plays an important role in how you can actually do it, so let's take a look at the difference between being solvent and insolvent.

Solvent vs. insolvent companies

First things first, you're going to need to determine whether or not your company is solvent or insolvent since this will deicide which closure method is the most appropriate for your business.

Solvent companies are businesses that have plenty of assets to cover the various liabilities and expenses they have — which is the financial state you want to be in when running any kind of business.

On the other hand, an insolvent company owes more than the assets it owns, meaning that it's not making any profit and is soon going to run into some serious financial troubles unless it can get its cash flow sorted.

Solvent company closure

1. Members Voluntary Liquidation (MVL)

If your company is solvent and you're not being forced to close it, the most common route that you'll find is by undergoing a Members Voluntary Liquidation (MVL).

Put simply, this basically involves all of the company's assets being distributed among its members — nice and simple.

Now, to actually initiate an MVL so this procedure can get started, you're going to need the majority of your directors to make a statutory declaration of solvency.

2. Company assets and bank account

Next, you'll want to take stock by identifying and trying to assign a value to all of the assets owned by the company. This might include things like property that you own, equipment, or even any outstanding invoices you're expecting to come in soon.

It should go without saying that you also need to ensure that any debts — including things like taxes, utility bills, or unpaid invoices — are promptly paid off before you try to close your company.

After you've settled all of your outstanding transactions, make sure to contact your bank so you can close your company bank account, and then you can move onto the next step.

3. Corporation tax and final returns

If your company owes money in corporation tax, make sure this gets paid quickly so you can file the final company tax return.

You will also need to work out any of the capital gains or losses you've recorded for the year.

You can do this on your own, even if you're a small business owner, or you can choose to pay for a financial advisor or accountant.

Once you've filed all of the remaining tax returns, let HMRC know about the closure before sending the following documents.

4. Companies House procedures

Now that you've completed the previous steps, your final requirement is to submit a few forms to Companies House so you can officially close your company. This is usually done by filing a document known as a “DS01 form”, something that's going to require approval from all the company directors and shareholders.

It's also referred to as the “striking off application by a company” since it basically acts as a formal request to Companies House to take your company's name off of the register so it's officially dissolved.

In terms of what you actually have to provide on this form, it only requires some information about the company, such as its name, registration number, and the date when it ceased trading.

Finally, all of the directors need to confirm that the company has no outstanding liabilities before you can fully close — as well as the distribution of all the company assets among the shareholders.

Insolvent company closure

If your company is insolvent when it closes, there are a few more things you will need to do.

1. Creditors Voluntary Liquidation (CVL)

It's not uncommon for a company to become insolvent when it is unable to pay its debts and a Creditors Voluntary Liquidation (CVL) is usually the best option.

It is essentially a process where you'll need to appoint an insolvency practitioner to officially liquidate all of the assets owned by the company so that all of the proceeds can be distributed to the creditors or anyone else you owe money to.

2. Dealing with outstanding debts

Before you actually start proceeding with the CVL, it's best to work closely with your insolvency practitioner so you can have a detailed discussion about the company's outstanding debts.

You will also need to inform all of the aforementioned creditors about the impending liquidation process you're commencing, and potentially even if you can negotiate repayment terms if possible.

3. Interested parties and directors' responsibilities

Aside from the creditors, there's usually a few other interested parties that are crucial to notify while you're making your way through the CVL process, and you'll need to keep your employees in the loop also.

Although it's not always possible, it will make things easier if your directors are cooperating and being as helpful as possible while dealing with the insolvency practitioner.

4. Compulsory liquidation

Finally, and this would be the worst case scenario for everyone involved within your business, there is a possibility that the creditors might not agree to the CVL, or your company's directors might even fail to act in time.

If this happens they could petition the court for compulsory liquidation of your company.

This is a process that's initiated by the court and can ultimately lead to all of your company's assets being sold so that they can fund all of the outstanding debts that you owe.

Navigating the legal landscape

Now that we've distinguished the different processes involved when it comes to dissolving a solvent company versus an insolvent company, let's focus on some of the legal aspects involved within the process.

Seeking professional advice

Regardless of your company's financial situation, professional advice can be useful and if you hire an expert to help you, they can guide you through some of the complexities of closing a limited company.

If you hire an insolvency practitioner their job is to safeguard the interests of all of the parties involved, although you will have to pay a fee for their services.

1. Insolvency practitioner role

An insolvency practitioner will act as an impartial third party that oversees the entire liquidation process — whether that's through MVL or CVL.

They bring their expertise to the table here, too, and this means the assets are being distributed fairly — not to mention total compliance when it comes to all of your legal obligations.

2. Company Voluntary Arrangement (CVA)

A process known as a Company Voluntary Arrangement (CVA) is also something you could consider if you wanted to restructure your business and repay the debts without having to resort to liquidation.

This is rare because not every creditor is going to agree, they have cash flow requirements as well, but it is a legally binding agreement with the creditors that essentially allows your company to continue trading while repaying its debts over an agreed period of time.

Navigating the administrative process

Finally, let's round the article off by covering a couple of tips that might help when it comes to working your way through some of the more bureaucratic parts of closing a limited company:

Timing considerations

It's worth reiterating the importance of staying mindful when it comes to staying on time once you've initiated the closure process.

Both Companies House and HMRC have specific deadlines that you'll need to adhere to when filing certain documents, and if you fail to adhere to these, there is a strong chance that it'll result in penalties and even further complications.

Company strike off

Lastly, if a company is dormant and meets specific criteria, your directors can actually apply for voluntary strike off, which is a process that basically removes the company from the Companies House register.

Having said that, there are a few legal and financial obligations that need to be met before applying for this, so you must meet these first.

Related Guides:

FAQs

What Is a Limited Company in the United Kingdom?

How Is a Limited Company Structured?

How Is a Limited Company Taxed in the United Kingdom?

What Are the Advantages of Forming a Limited Company?

Can I Continue Trading With a Different Business Structure After Closing a Limited Company?

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