Top 3 Reasons For Closing A Limited Company That’s Solvent

It’s very common to hear of companies in financial distress being forced to close down due to mounting debt problems. These companies may close down via a compulsory strike-off, a compulsory liquidation or via a Creditors’ Voluntary Liquidation (CVL). However, it’s less common to hear of closing a limited company that is still solvent. What is the purpose or benefit of closing a limited company whilst it’s still solvent? This depends on many different circumstances that may include:

Retirement

If business owners are looking to retire and don’t want their business to continue trading, or don’t have a viable succession plan then closing down is often the best option. Closing a limited company via a voluntary liquidation allows retiring business owners to wind up the affairs of the company in the most tax-efficient way possible, whilst taking the responsibility off their hands. This means that the money extracted from the liquidation can be put towards enjoying a stress-free retirement. 

Change Of Business Venture/ End Of An Era

Another common reason for closing a limited company whilst it’s still solvent may simply be that the business has come to the end of its useful life. It doesn’t have to be the case that you’re closing a limited company due to it failing. Perhaps, as a business owner, you’re looking for a change of direction, or you think the project has run its course. In this case, closing a limited company via a strike-off or Members Voluntary Liquidation (MVL), enables you to close the door and start a fresh chapter, having wound up the affairs of the business properly.

Extract Funds Tax Efficiently

Closing a limited company when it is solvent is the most tax-efficient way to wind up the affairs of the business. Closing a limited company via an MVL enables funds to be extracted at a lower tax rate with the help of Business Asset Disposal Relief. Where possible, it’s always best to wind up the affairs of a limited company whilst it is still solvent, rather than allowing financial difficulties to escalate to the point of insolvency.

How To Close A Limited Company That’s Still Solvent

There are two main options for closing a limited company when it is still solvent. These are strike off or Members’ Voluntary Liquidation (MVL). Let’s take a closer look at what each of these options involve. 

Strike-Off

In a voluntary strike-off, the directors, secretary or advisor of the limited company will apply for the business to be struck off from the Companies House register. Once the application for a strike-off has been made, the decision will be advertised. If no objections are made within a 3 month period the company will be dissolved. When closing a limited company via a strike-off, there are certain conditions that need to be met. Specifically, within 3 months prior to the application, you must not have:

• Traded or otherwise carried on business
• Have changed the company name 
• Be threatened with liquidation or have any agreements with creditors

This is a useful and cost-effective process for dormant companies or for those who have not traded in a while.

Members’ Voluntary Liquidation (MVL)

The most tax-efficient method for closing a limited company is an MVL. The process of an MVL is overseen by a licensed insolvency practitioner, who will ensure all funds are distributed to the relevant party (directors, shareholders, creditors) in the most tax-efficient manner. The liquidator will ensure the company is wound up correctly, with HMRC clearance. At My Liquidation, we aim to distribute the majority of assets within the first 72 hours. 

For further advice on which is the best method for closing your solvent company, please don’t hesitate to get in touch with us.