Company dissolution is when a business and all of its information is removed from the Companies House public register.
Unfortunately, more and more companies have to go through this process each year, this can be due to many reasons such as; a business’s purpose has been fulfilled or is no longer relevant, the business has incurred debt and is seeking an alternative to liquidation, or a business never really got the ground running and has been sat dormant for some time.
To dissolve a company, also known as ‘dissolution’ or ‘striking off’, is a way in which a limited company can remove its name from the official register, and once the name is removed, the company no longer legally exists. Dissolution can be a smooth way to voluntarily close a limited company because there are no liquidation costs, minimal publicity surrounding the decision, and no investigation is needed into the conduct of a company director.
So, what is the difference between dissolution and liquidation?
- Dissolution is used when a company has no debt, or an amount of debt/liabilities that can be settled within 12 months.
- Liquidation is a path you go down when you are unable to accumulate the amount of debt the business owes, it’s process extracts assets from the company to raise as much money as possible, and uses the money raised to pay off the debt. If you want to file for liquidation, you need a licenced insolvency practitioner to oversee the whole process.
What are the requirements to dissolve a company?
Assuming the company is debt-free, it will also have to meet some other conditions to be eligible for dissolution. The company must;
- Not have changed it’s name in the last 3 months
- Not have sold off or traded any stock in the last 3 months
- Not have received any threats surrounding liquidation or other types of insolvency proceedings
- Not have any agreements with creditors such as a Company Voluntary Arrangement (CVA)
My company ticks all the boxes, what’s next?
If you want to dissolve your company, you can either apply to be removed from the register of companies or start a Members’ Voluntary Liquidation. If you have some debts that can be paid off when you sell your assets you should choose the correct method of a Members’ Voluntary Liquidation. If the company hasn’t traded, changed its name, has no debts, and hasn’t sold stock in the last three months, being removed from the register (striking off) is the appropriate route to take.
What’s the best/easiest process?
Liquidate assets and debts before dissolution
- Sell your assets and transfer them out of company ownership
File the Dissolution Paperwork to Companies House Form with Form DS01
- Once sent, send a copy to employees, shareholders, creditors, pension managers, trustees, and directors.
Wait to receive the Striking Off acceptance letter
- You’ll receive an acceptance letter stating that your dissolution will be announced in the London Gazette
The announcement in the Gazette means the company has been officially dissolved.
- Your company no longer exists after this point.
Advantages of Dissolution
- The strike off process can be quick and easy, it takes at least three months for a company to be officially dissolved.
- There is only a small cost to submit the application
- No investigation will be undertaken into the director’s conduct
- There’s no requirement to file annual returns or accounts
Disadvantages of Dissolution
- Creditors may object to the application, blocking the company from dissolving
- Outstanding debts cannot be written off and legal action could be taken to make you repay
- If you dissolve, your leases are not terminated. Instead you will have to file for a Creditors Voluntary Liquidation (CVL), or CVA.
- The process is open to mistakes when distributing assets. If errors are made, there could be legal action against the company.
A voluntary dissolution cannot be used unless all the requirements are met, it’s a criminal offence to try and strike off a company with knowledge of creditors involved. With Holded’s online accounting software you can manage your business expenses, purchases, and assets from any device, any time.