There are many reasons why a director may decide to close their limited company. In this blog, we’re looking into how to close a limited company that never traded.
Business closures
There are so many reasons why a business may close, but it doesn’t mean anything has gone wrong or that the business was experiencing financial difficulties. Here are some of the most common reasons why a company may close.
- Retirement
- Change of business direction
- Financial difficulties/insolvent company
It’s completely your choice if you decide to close your business. Similarly, it’s your choice who you disclose the reason for closure to.
How to close a limited company temporarily
Closing a limited company is a big decision. Many directors struggle to make a definitive decision, so they may look into other options. The good news is that there are options available for temporarily closing a company.
If you’re unsure what your company’s long-term goals are, you can register it as ‘dormant’. This is a great idea for those who are happy with their company’s current situation and think they may want to trade again in the future.
It’s worth noting that you can only make a company dormant if it is solvent and owes no money to creditors. You will also still be required to file annual accounts and complete a company tax return and balance sheets while your company is dormant.
If your company has debts, then this is not a suitable route to take. One of the following may be more appropriate.
Common methods for business closure
Various methods of liquidation are available, but the most suitable option depends on the circumstances of the business. The company’s financial situation plays a significant role.
Creditors Voluntary Liquidation
This is the most common method of liquidation. It is used by insolvent companies that cannot afford to pay their debts when they fall due, or their liabilities are worth more than their assets.
A creditors’ voluntary liquidation reflects positively on the director, as they have made the decision themselves to enter the proceedings. They will need to appoint an insolvency practitioner who will complete a director’s conduct report and try to recoup money for the creditors. This money will usually come from company assets. If no wrongdoing is found, the company’s debts will most likely be written off, and the company will be closed.
Members Voluntary Liquidation
A member’s voluntary liquidation can be used by companies that are solvent and can afford to pay their debts back over a period of time due to the company’s assets. At least 75% of the company’s directors must agree to the members’ voluntary liquidation. It is well-known that this is a tax-efficient way to close a company if you are eligible to use it. This is due to the ability to claim business asset disposal relief. Talk to your insolvency practitioner about this if you have a solvent company.
Compulsory liquidation
This method is best avoided if possible as it can lead to further issues and does not reflect very well on the director. This method is forced upon companies, leaving them with very little control over the process.
Company directors will face increased scrutiny and have no control over who their insolvency practitioner is. The compulsory liquidation process begins with a winding up petition and can last longer than other liquidations.
If you choose a formal liquidation process, your company will be closed and removed from the Companies House register. Usually, licensed insolvency practitioners will be required to complete the process.
Closing a limited company that never traded
Closing a company with no trading history is a reasonably simple task. Of course, if you’re unsure of your long-term goals, you may be better off making the company dormant.
If the company hasn’t traded, then, in theory, it should also have no debts or creditors. If this is the case, you can use a strike-off or company dissolution method.
How to strike off a company
Striking off a company couldn’t be easier and is actually the cheapest way to close a limited company. All you need to do is download a DS01 form from the government website, which will cost £33.
Once you have filled out the form for company closure, you should send it directly to Companies House, who will process the application. You should also send a copy of the form to ‘notifiable parties’, which includes your creditors, employees and shareholders. Of course, if you have never traded, then this part may not be necessary.
The next stage involves advertising the company strike-off in the local Gazette newsletter. This invites other companies, such as creditors, to object to the closure. If there are no objections after three months, the company will be closed and removed from the Companies House register.
If you need to sell any business assets, they must be sold at market value. You should keep documentation of this for protection.
Companies with debts that attempt the strike-off method will face the consequences. Any company that uses the strike-off method with debts can be reinstated for many years. Additionally, when your creditors are notified, they will object and most likely force your company into compulsory liquidation.
Who is eligible for the strike-off method?
- You must have a solvent company and owe no money to creditors (solvent companies own assets worth more than their liabilities)
- The company must not have traded or sold any stock in the last three months
- The company name must not have changed in the last three months
- The company must not be under any threat of other liquidation, insolvency or company voluntary arrangement (CVA)
If your company does not meet this criterion, you will need to look into another closure process.
If your company has never traded, it should have no debts or creditors, so you should be able to use the strike-off method as long as you meet the additional criteria above.
Do you need to seek professional advice on closing your limited company? Contact our friendly team.
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