If your UK business is not making enough profit, you can always choose to close your LTD company. In doing so, you have several solutions to choose from, depending on the state of your business and the reason for its closure.
When is it possible to close a Limited Company?
Everyone who starts their own business hopes for continuous growth and high profits. However, the reality sometimes falls short of these expectations. The good news, however, is that winding up a Limited Company is neither complicated nor time-consuming. Nor does it involve much paperwork. And if you decide to use professional help, the whole procedure will be even simpler.
In fact, closing a Limited Company is allowed for many reasons. Most often, you will make such a decision for financial reasons. However, it may also happen that even though your business is doing well, you no longer wish to continue running it. In this case, you can also terminate operations, although the process will be slightly different.
Liquidation for financial reasons
If your LTD company has debts, ending the business may become necessary. In this case, you have two options.
1.Creditors’ Voluntary Liquidation
This is the solution to choose when your company is insolvent and you want to have at least partial control over the liquidation process. To initiate Creditors’ Voluntary Liquidation, it must be approved by members holding at least 75% of the company’s shares.
You will also need to appoint a licensed insolvency practitioner, who will take control of the company and oversee the liquidation process. They will be paid from the company’s assets as the first priority.
2. Compulsory Liquidation
Liquidation of the company can also be sought by the creditors themselves. In this situation, the company will not be dissolved voluntarily by the directors – the court will do this, usually on a special application by the creditors (Winding up Petition). It may then decide to compulsorily wind up your business. For this reason, the whole procedure will usually prove more stressful and costly.
In the case of Compulsory Liquidation, you also do not have the option to choose the insolvency practitioner. Instead, the court appoints an official receiver, who will handle the liquidation. Their main task will be to sell the company’s assets and pay off the creditors.
When is Members’ Voluntary Liquidation (MVL) possible?
However, financial problems are not the only reason for closing a business. You can also choose to do so if you want to retire or for other reasons no longer intend to run the business.
In this case, the best solution may be Members’ Voluntary Liquidation (MVL), which is a voluntary winding-up of the company. However, you can only opt for this if your business is solvent. This means that the company’s directors must assess the assets and liabilities and then file a solvency statement supported by the balance sheet.
The next step is to pass a resolution for voluntary liquidation. You will need the agreement of the board of directors and at least 75% of the company’s shareholders to proceed with MVL.
You will also need to appoint a licensed insolvency practitioner to handle the company’s liquidation. Their role will be to oversee tax matters and distribute assets. After completing this process, they will file a final declaration with Companies House. Three months after this point, the company will be automatically struck off the register.
The simplest way to close a Limited Company: strike off
There is an alternative to the MVL process, which is strike off. You can use this option if your company:
- is not facing liquidation,
- has not sold shares in the last 3 months,
- has not changed its name in the last 3 months,
- has no agreements with creditors (e.g., voluntary arrangement CVA).
This means you cannot use the strike off procedure immediately—you must decide at least 3 months in advance to meet the above conditions.
You will also have several additional obligations. First and foremost, before you apply to strike the LTD company off the register, you will need to:
- notify HMRC and interested parties (shareholders, employees, creditors, managers, directors) of your plans—you must send them a copy of the strike off application within 7 days,
- if you have employees—follow the rules for paying salaries, PAYE, and national insurance, and inform HMRC that you will no longer employ staff,
- making sure all assets have been distributed to members – otherwise the money will go to the Treasury.
You must then send a final account and tax return to HMRC. However, you are not required to file any additional documents with Companies House. All outstanding taxes must also be paid.
IMPORTANT: After being struck off the register, you must keep business documents for 7 years. For documents related to employees, this period is even longer—40 years.
As you can see, you have several options for closing your business. The problem is that many solo entrepreneurs choose a method that is not optimal for them. It is also common for them to neglect certain obligations or incorrectly fill out documents, leading to significant consequences.
If you want to ensure you choose the best possible option, don’t act on your own. Take advantage of our assistance. We will determine the most optimal solution and guide you through the entire liquidation process. This way, you can be confident that closing your Limited Company will proceed in the best way possible for you.
