There are many reasons that companies are dissolved from insolvency to shareholders deciding they’ve had enough and they want to take the available cash and assets within the business for themselves.
It’s important to do it right – dissolving is a lot more complicated than formation. In this article, the Smart Team looks at business dissolution.
Dissolution – legal aspects
Dissolution is governed by part 31 of the Companies Act of 2006. Government guidance on the mechanisms for “striking off your company” is provided here. The process is slow – a dissolution will take 2 months or more after the application (made using a DS01 form) to strike off if there are no grounds for delay.
You should not resign as a director before making the application to strike off your company because you must be a director at the time you send the application to Companies House.
You may not apply to strike off your company if your business, in the last three months, has:
- changed its name
- done anything else except one or more of the following: make the application for striking off (including costs associated with this), settled its debts, complied with statutory requirements, or sold property or rights it holds that it needed to do business when it was trading.
If you sold computer systems for example, you could not sell them for three months prior to applying to strike off the company but you could sell the warehouse in which the computers were stored and the fork lift trucks which were used to transport the computers from the warehouse’s shelves to the waiting delivery company.
Within seven days of sending your strike off application, you must inform all of the people, companies, and organisations with an interest in the affairs of your company. They include members/shareholders, creditors, banks, suppliers, landlords, HMRC, guarantors, anyone with a personal injury claim against you, employees, employee pension fund managers and trustees, and directors who have not
On the day your company is dissolved, its bank account will be frozen and any money that is left in it will be transferred to the government. The government will also take ownership of any of the assets the company has title over. Take advise from your accountant on how to avoid this happening to you. If it does, it is possible to get the cash and the assets back, but you must “restore” the company – an expensive and complex procedure.
Dissolution – what if you change your mind?
It’s possible to stop the strike off process with a form DS02 from Companies House. You can fill in the application form online (you will need your Companies House WebFiling log-in details to do this) or by standard paper form.
If, after making the original application to be struck off, you start business again, change your name, carry on an activity not needed to dissolve your business, or your business becomes subject to either a section 900 application (an agreement between creditors and a company) or insolvency proceedings, you will need to complete form DS02 to be in compliance with company law.
Dissolution and tax
If the assets of your business are £25,000 or less, you can distribute the assets prior to dissolution and treat them as a capital gain (on which Entrepreneur’s Relief may be applicable). If the assets available are higher than £25,000, we would normally recommend that they are treated as a dividend (on which no Entrepreneur’s Relief will be applicable). Depending on how much you have paid yourself during that tax year, this could make the payment of this final dividend expensive in taxation terms.
Smart Team tip – Entrepreneur’s Relief is a discount on the amount of capital gains tax you pay upon the disposal of shares within a company. The rate is set at 10% and there is a lifetime limit of £10m on the relief.
As a company director, you are responsible for the conduct of your company and continuing to do business when you know that your company can not pay its debts is “wrongful trading”.
We can help
For all accounting aspects of dissolving your company, please get in touch with our team. We can guide you through the whole process. Call us today on 01202 577 500 or email us at firstname.lastname@example.org