When we set up a business, we’re not thinking of having to close it eventually. The reality is, though, that most businesses do eventually close, even if it’s after a good run. However, there are right and wrong ways of going about it.
Why Might You Need to Close Your Business?
It’s a sad statistic that a fifth of all businesses close within a year of being launched. There are various possible reasons. Maybe they have problems with cashflow. Maybe they’re finding it difficult to attract enough customers. Maybe the competition is stiffer than they’d anticipated.
On the other hand, a business may close later in its lifetime because it’s outlived its time, and it seems simpler to close down and start again than to try to repurpose the company. Or simply because the owner is no longer enthusiastic and, for whatever reason, chooses not to sell.
Dissolving Your Company
Dissolving your company (also known as striking off) is the simplest way to close it, as long as it’s still solvent. You simply apply to Companies House to have it removed from their register, after which it no longer exists as a legal entity and can’t continue trading.
In order to be eligible to dissolve your company, it must not have traded or sold off any stock, or changed its name, within the past three months. Most crucially, the company must not be facing any insolvency proceedings or a Company Voluntary Arrangement.
Before dissolving your company, there are a number of steps you must take:
- Paying any money owed, such as salaries, redundancies and tax liabilities.
- Distributing any remaining assets to the shareholders — any money remaining after dissolution goes to the Crown.
- Close all the company’s bank accounts.
- Inform HMRC, as well as lodging final accounts and tax return, and asking them to close the company’s payroll account and deregister for VAT.
- Inform all interested parties.
Creditors Voluntary Liquidation
If you attempt to dissolve a company that’s facing insolvency proceedings, or that has debts it can’t pay, you could face legal action, including up to fifteen years disqualification.
If there are debts outstanding (including Bounce Back Loans) that the company’s assets won’t cover, the correct procedure for closing your business is through a Creditors Voluntary Liquidation (CVL). Here, an insolvency practitioner will arrange to sell off the company’s assets, which will be used to pay creditors.
Both dissolution and CVL are orderly ways in which to close a company, depending on the circumstances, and sometimes this is the best solution to take. However, businesses may sometimes be facing closure because outstanding invoices have damaged their cashflow.
If your business is in this situation, give me a call to see if I can help you avoid the need to close.