What Is The Best Way Of Closing A Solvent Limited Company?

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Business closure is often associated with only those businesses that cannot pay their debts and liabilities. However, there are a number of instances in which you may be considering closing a solvent limited company, including retirement, a change in direction, or the simple fact that the business has fulfilled its purpose. In these circumstances, closing a solvent limited is still a very significant decision and there are typically two ways that company directors can go about this: Members Voluntary Liquidation (MVL) or dissolution (also known as company strike off).

Both methods of closing a solvent limited company offer different advantages and considerations depending on the exact circumstances of your decision to close. Below, we’ll take a closer look at your options, exploring the pros and cons of liquidation or dissolution to help you determine the best route for closing your company.

Members Voluntary Liquidation

For retiring business owners and/or companies with significant assets, the Members Voluntary Liquidation process can be a very efficient way to close. This formal process involves distributing the company’s assets to shareholders in an orderly manner before the company is formally closed and struck off the Companies House Register. It must be carried out by a licensed insolvency practitioner, who acts as the liquidator and oversees the distribution of assets. 

Advantages Of An MVL

When large or significant assets are involved in company closure, business owners will naturally want to ensure that they can access as much of this value as possible. With this in mind, an MVL is often viewed as the best way of closing a solvent limited company as it is a tax-efficient process. Distributions made can qualify for Business Asset Disposal Relief which reduces the rate of Capital Gains Tax to 10%.

The formality of an MVL also gives stakeholders and shareholders reassurance that the closure of the company has been completed transparently and legally. If business owners are planning to move onto a new venture, this can be particularly advantageous as it ensures that relationships remain strong.

Disadvantages Of An MVL

The MVL process must be completed by a licensed insolvency practitioner, which some may view as a disadvantage. While the insolvency practitioner is in place to ensure that the process is completed correctly, appointing them does incur a fee which will typically sit in the thousands of pounds. Business owners will need to consider this proportionately to the assets they have available, weighing up immediate cost with the overall gain they may make from the tax efficiency of the process.

Company Dissolution

Company dissolution or strike-off is typically viewed as a simpler and more informal way of closing a solvent limited company. It is a suitable process when the company in question has no outstanding liabilities or debts and simply wants to be struck off the Companies House Register. Directors will simply submit a DS01 form to Companies House to request the company’s removal from the register. If no objections are raised, the company will be struck off and cease to exist.

Advantages Of Dissolution

The main advantage of dissolution as a way of closing a solvent limited company is that it is typically a simple process. It costs just £33 to apply online and usually allows for the quick closure of the company providing there are no objections. 

Disadvantages Of Dissolution

However, there are circumstances in which dissolution will not be an appropriate method of closing a solvent limited company. If your business has assets exceeding £25,000, dissolution is not permitted and an MVL becomes the only option.

Business owners must also be aware that they still have important responsibilities when arranging for their solvent company to be struck off. All debts must be settled before dissolution as failure to do so could result in personal liability or legal consequences should the company be restored. Any distributions made will also be taxed as dividends rather than capital distributions, meaning they do not benefit from the tax reliefs that can currently be accessed through the MVL process.

The Best Method Of Closing A Solvent Limited Company

Ultimately, the best way of closing a solvent limited company depends on the circumstances of the business and the reasons for wanting to close in the first place. However, business owners with significant assets and a desire to maximise the value of these assets should always explore the option of an MVL, as this ensures they can extract the value from their business in the most tax-efficient way possible.

At My Liquidation, we can help you close a solvent limited company via an MVL. Our expert insolvency practitioners are licensed to carry out the process and can talk you through the implications for you and your company so that you know you are making the best decision for you. Get in touch today to find out more. 

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