Dissolving a company

Dissolving a company: What’s involved?

A dissolved company is one which has legally ceased to exist. Thousands of companies formally dissolve every year in the UK. In 2018 to 2019 alone, there were 508,865 dissolutions. It’s simply a sad fact of life that companies come and go.

If you’re thinking about dissolving your own company, here’s everything you need to know about the process.

Dissolution of a company

What is company dissolution?

Dissolving a limited company is the act of removing the company from the Companies House register. It is a way of officially closing the company down.

Dissolving a company is also known as ‘striking off’ or ‘dissolution’.

Dissolution differs from other methods of voluntarily closing a company in several ways. Primarily; there are no liquidation costs, no investigation into the conduct of the director(s), and very little publicity.

Someone might choose to dissolve a company for a number of reasons, but the most common ones are:

  • The company is dormant (no longer trading).
  • The company is no longer as successful as it once was.
  • The director is reaching retirement and has no further use for it.

Dissolving a company is a very simple and cost-effective way to close your business… provided you meet the strict requirements. We’ll explore these below.

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When is a company eligible for dissolution?

A company may file for dissolution only when it meets certain conditions. To be eligible, a company must:

  • Not be under threat of liquidation, nor have any existing agreements with creditors (such as a Company Voluntary Agreement).
  • Not have traded in the last 3 months.
  • Not have changed its name the last 3 months.

To proceed with dissolution, all outstanding debts must be paid and company assets should be sold and transferred out of company ownership. Bank accounts should also be closed. Any assets that remain after dissolution will automatically pass to the Crown, including bank balances.

If your company is insolvent, you will need to seek an alternative method of closing the company down, such as liquidation.

How to dissolve a company

Before applying to dissolve a company, you must inform HMRC. You will need to file your final accounts and tax return with HMRC, deregister for VAT and request that the company’s payroll scheme is closed. You must also pay all Corporation Tax and any other tax liabilities.

You must ensure all employees are treated according to the law (this involves paying final wages and following rules regarding redundancy).

And, as mentioned earlier, you must deal with business assets and accounts in the appropriate manner. It’s important to note that this includes digital assets, such as domain names.

A company is dissolved by submitting a DSO1 form. The form must be signed by a majority of the directors. This form is sent to Companies House, but a copy also needs to be sent to all ‘notifiable parties’ within 7 days of applying for dissolution. A notifiable party might be a creditor, employee, shareholder or trustee of an employee pension fund. If you don’t follow these rules you may face a fine or prosecution.

When you have submitted form DSO1, a notice announcing your decision to dissolve is placed in the official public record (The Gazette).

If no objections are made, your company will be officially dissolved three months from the date of this notice. The Gazette will then publish a final notice, confirming the dissolution.
The cost of dissolving a company is £10.

After the company has been dissolved, you must any keep records and documents relating to the business for seven years.

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Are there alternatives to dissolving a company?

If you feel that dissolution isn’t the right course of action for your company, here are two alternatives to consider.

Members’ voluntary liquidation

This option is only available for companies who have no debts, or can settle its debts within twelve months.

A members’ voluntary liquidation is a process whereby a liquidator is appointed to release the company’s assets. These assets are then used to pay off all company debts and a statement of solvency is declared. After the debts are paid, the remaining proceeds are distributed to members.

There are costs associated with this method, as a licensed insolvency practitioner must be hired. However, hiring a professional ensures the process runs smoothly. There are also potential tax benefits to choosing this route.

Dissolving a company can be a straightforward and cost-effective option for those who want to close down their business. However, there are potential risks and it’s not always a seamless process. To be sure company dissolution is right for you, contact a professional for advice.

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…or leave the company dormant

You can avoid all the hassle and (most of) the paperwork of dissolution by registering your company as dormant. This is the best course of action if you believe you may need the company in the future. You will need to file dormant accounts and a statement of conformity every year, so there’s still a small amount of paperwork involved.

Call 01489 550 440 or complete the form for free advice or a no-obligation consultation

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