When a limited company ceases trading, there are many different issues to address. As you might expect, the main considerations generally revolve around money, such as making finances available for staff wages, the rent of your office space, supplier fees and any outstanding bills. Being forced to close your limited company due to a lack of finances can be stressful, but it’s possible to come out of it in a positive way as long as you handle it accordingly.
Limited companies face insolvency when they’re unable to pay money they owe to either a person or another company, or when the value of the company’s assets is smaller than its liabilities both now and in the future.
As soon as liquidation is confirmed, an insolvency practitioner will be appointed to guide the liquidation process. The business will then be under their complete control, leaving them accountable to make remaining payments, settle legal disputes, close company contracts, settle costs of liquidation, fill out the relevant paperwork and pay the final VAT bill.
How to close a limited company that never traded
It can feel like an uncertain situation if you’re closing a limited company before any trading has even taken place, but it’s actually more straightforward than having to deal with the closure of an established company. HMRC recognises a limited company that is yet to trade as being inactive if it’s yet to pay any form of tax on the work that’s been conducted due to not yet dealing with any money.
If this is the case and your limited company isn’t active, you won’t need to make outstanding payments, especially regarding business taxes, tax returns, VAT, PAYE and any other considerations that would have affected you if you’d started trading. It would be advisable to contact HMRC before taking any steps towards closing your company though, as fees could be incurred later in the process if a company does in fact have unpaid bills. Doing this also means that you should be able to stop any further communication from HMRC.
To start the process of dissolving what’s often referred to as a dormant company, a representative will have to apply for the company to be struck off after a majority of the directors have agreed to it. An application for dissolving a company that never traded is made via Form DS01, which is an easy form to complete as it only requires the company name, company registration number and the names and signatures of at least a majority of the company’s directors. Upon completion, the form needs to be sent to Companies House for approval.
What is voluntary liquidation of a limited company?
Voluntary liquidation is when the directors of a company decide to dissolve their company. Unlike compulsory liquidation, it is a decision made entirely by the directors and stakeholders of the company, with no influence from a court or a relevant governing body.
Due to the completely voluntary manner of this type of liquidation, it may be the case that there is some money left in the company, making it solvent. Under these circumstances, the company would terminate operations in a quick, professional way, tying up any remaining loose ends in terms of finances, dismantling the business structure, and making any outstanding payments or refunds where applicable.
There are two types of voluntary liquidation in the UK. The first is a creditors’ voluntary liquidation, where corporate insolvency occurs, and the second is a members’ voluntary liquidation, where all you need is a corporate declaration of bankruptcy. A members’ voluntary liquidation requires assets so they can be liquidated to meet all obligations and at least three-quarters of the company’s shareholders need to vote in favour of voluntary liquidation for it to be approved.