Dissolving a company

When a company is removed from the Companies House register – also known as “striking it off” – it becomes unlawful for them to continue trading.

This process is known as a company dissolution.

There could be a number of reasons why directors of a business might want to dissolve their company – maybe the business has fulfilled its purpose and come to the end of its natural lifecycle, or economic difficulties have started to take their toll.

Whatever the reason may be, there are some critical things you should keep in mind before taking this step.

What does dissolution of a company mean?

Striking off a company from the Companies House register is a formal way to shut it down if the directors have made the decision that it should no longer operate.

Taking this step can make it easier and faster to close a company.

Anyone looking to dissolve a company must first make sure the government’s requirements have been met.

These include:

• not trading or selling any stock in the last three months
• no changes of business name during that same period
• no threat of liquidation
• no agreements with creditors such as a Company Voluntary Arrangement (CVA).

If these conditions aren’t fulfilled a dissolution won’t be possible but it may still be able to liquidate the company instead.

Steps to take before dissolving a company

Before you apply to dissolve your company you will need to prepare your business for dissolution.

This includes taking steps such as:

• making any employees redundant (following the rules when making any employees redundant
• paying final wages to staff
• informing HMRC that you are no longer an employer
• sharing assets between shareholders
• sending your last accounts and Company Tax Return to HMRC
• possibly paying capital gains tax on any personal profits from assets removed from the business (Entrepreneurs’ Relief may be an option here)
• settling all outstanding debts and taxes.

It’s worth remembering that the company’s bank account will be frozen from the date of dissolution.

Any credit balance in the account and other assets will pass to HMRC and you’ll have to restore the company to reclaim anything.

How to dissolve a company

When you have everything in order, it’s time to officially dissolve your company.

To do this, you’ll need to submit to Companies House a DS01 form signed by the majority of the company’s directors.

You can apply online for £8 or use a paper application which costs £10.

Once your application is submitted, you must inform anyone who may be affected by your decision to dissolve the company within seven days, such as employees, shareholders, creditors, and any directors who didn’t sign the DS01 form.

If all goes well and no one objects to the dissolution of your business, it will be removed from the Companies House register after two months of the notice being published in The Gazette.

After that, a second notice will appear in The Gazette confirming that your company no longer legally exists.

Reasons why a company might be dissolved

There are plenty of reasons a company might dissolve, either voluntarily or involuntarily.

Voluntary dissolution typically takes place when directors believe the company has fulfilled its purpose and there’s no need to keep trading, or when business partners can’t agree on the future direction of the company.

It could also happen if the finances become too hard to manage and the company is no longer able to cover its debts.

On the other hand, involuntary dissolution is when Companies House legally closes down companies for missing out on responsibilities such as tax returns and accounts.

Can you voluntarily dissolve a company?

Voluntarily dissolving a company is quite doable and it follows certain conditions set by Companies House.

If a business has not traded or changed its name in the last three months, has no outstanding debt repayment agreements, and isn’t being threatened with liquidation, then applying to strike off the company is an option.

Additionally, to close down properly, all the necessary boxes must be ticked so it’s worth reading the guidance on the Companies House website.

Can a company be dissolved if it has debts?

A company can be dissolved, even when debts remain.

However, it must be done in strict compliance with specific rules and regulations.

Directors must sign what is known as a ‘declaration of solvency’ which proves the debt can be repaid within 12 months.

It’s also essential to notify creditors of the plan before any action is taken.

Refraining from this could lead to significant legal implications.

If repaying the debts appears impossible within 12 months, liquidation may be a better option.

What happens if I don’t want to dissolve my company anymore?

If your company is no longer eligible to be struck off (for example if it starts trading or becomes insolvent), or you decide against dissolution and want to keep your company, you must withdraw your application.

To do so, you can either use the online service on Companies House website or send in a paper form DS02.

It’s important to act quickly in case of any of these scenarios.

What happens after a company dissolution?

When companies are dissolved, information related to them may be kept for up to 20 years afterwards.

Companies House and the National Archives both keep records of this dissolved information, which can be requested if needed.

You should keep business documents, such as bank statements, invoices, and receipts for seven years after the company is dissolved.

Additionally, the name of a dissolved company may be reused by another person with a different company number.

It is recommended to seek professional advice before making any decisions regarding dissolving a company.

Is a dissolved company still legally liable?

Even though a company has been dissolved, HMRC and other creditors may still choose to pursue it for unpaid debts.

It is important to note that the process of dissolution entails satisfying certain obligations to HMRC, such as paying what is owed and submitting updated accounts and tax returns.

As such, HMRC closely monitors these activities.

Can a dissolved company still operate?

After a company has been dissolved, it’s no longer able to operate.

This means the directors of the dissolved entity cannot continue trading and can face legal repercussions if they do.

However, getting a dissolved company back on the Companies House register is an option, as is using its name for another entity provided it has not been used in the meantime.

Liquidation, on the other hand, usually precludes the use of any existing names.