Dissolving a company is one of the formal ways to close a limited company.
Company directors often confuse their identity with the identity of their limited company. It’s an understandable mistake to make, particularly when there is only one director but it must be remembered that the limited company is a separate legal entity to its directors and so closing it needs to follow a formal path.
Dissolving a company legally closes the company and it will then be shown as dissolved on Companies House. The company will have been officially ‘struck off’ the register of limited companies.
There are two main methods for dissolving a company: voluntary dissolution and compulsory dissolution. Voluntary dissolution occurs when the directors of a company decide to close it and formally cease its operations. On the other hand, compulsory dissolution is enforced by a court or some other regulating authority in cases of serious company misconduct or when the company is no longer trading.
To initiate the voluntary dissolution process, certain statutory requirements must be met. One crucial aspect is the need to hold a general meeting where the shareholders pass a special resolution to dissolve the company. This resolution requires the approval of at least 75% of the shareholders. Once the resolution has been passed, the company must notify the Registrar, at Companies House, in writing or online within seven days. This is usually done using a form called a DS01. Once the Registrar has received notification of the desire to dissolve the company, they will review the application and ensure all the requirements are met. Once this has been done, a public notice will be issued and the dissolution process will begin. The public notice allows anyone who objects to the company closing, for instance if they believe they are owed money by the company, to object to the Registrar. If no objections are received within a specified period, usually three months, the Registrar will strike off the company from the register, effectively dissolving it.
A critical component of the voluntary dissolution process is the clearance of outstanding company affairs. Before dissolution, all company debts, taxes, and liabilities must be settled or appropriately addressed. This involves the payment of all outstanding monies owed to creditors and employees, as well as ensuring that all necessary tax filings are completed with HMRC. If any liabilities persist after dissolution, the company’s directors may become personally liable for them.
Alternatively, a company may face compulsory dissolution if it fails to adhere to certain legal obligations. For instance, if a company fails to file its annual accounts or submit the required returns to Companies House, the authorities may initiate court proceedings to have the company closed compulsorily. In such cases, if the company has outstanding debts, the court may appoint an official receiver, and the company’s assets will be liquidated to repay its creditors.
One of the most important aspects to take into account when deciding whether to dissolve a company is whether the company has debts. If a director applies to dissolve a limited company without clearing any company debts they are breaking the law. The director becomes a fraudulent director and very often will become personally liable for the company’s debts.
It is crucial that company directors remember that it is always the company director who is legally liable for the actions of the company NOT the company’s accountant.
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What does this mean to me?
Do you think that you can dissolve your company even though your company has unpaid debts? Do you imagine the company will close and the debts will simply go away? This is not the case and it’s illegal to dissolve a company without informing all creditors (people the company owes money to) of your plans.
Think of it another way. If you supplied goods to a company and then, before you were paid, the director of that company dissolved it before paying you. Would you be happy? Would you think it was fair or legal? No, of course you wouldn’t; you’d want your money.
Attempting to dissolve your company if it has unpaid debts without informing creditors is fraud. If you do this, not only will you have broken the law but the company can be reinstated so the creditors can pursue the company AND its directors for the money they are owed.
If your company can’t repay its debts you cannot dissolve it, you must appoint a Licensed Insolvency Practitioner to put the company into liquidation.
Want to know more? If you need help and advice you can simply ask us. We don’t charge for our initial advice and it’s always confidential and friendly.