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If your limited company has stopped trading, you can register it as dormant, but it doesn’t necessarily need to be liquidated. The appropriate way forward will depend on your future plans for the company and its solvent position.
When would a company stop trading?
A company could stop trading for several reasons, many of which revolve around retaining the company name. This could be to preserve a name that the company is already using, to reserve a name you wish to use for a business that’s due to launch, or for use later. It can also be used to keep an existing company name and associated assets registered while that company undergoes restructuring. You could also stop trading due to the death or illness of one or more key staff members.
If the company makes no significant transactions for a full financial year, Companies House will consider your company dormant. Similarly, HMRC considers a company dormant if it stops trading, paying corporation tax, or generating other income.
As well as letting a company go dormant, you can register it as such and close your company’s bank account to mitigate the risk of small transactions returning the company to an active state.
Is the company solvent or insolvent?
How you’ll close the dormant company will depend on whether it is solvent or insolvent. A solvent company can afford to repay its liabilities as and when they fall due, while an insolvent company cannot, and its liabilities will likely exceed its assets.
The company’s solvent status will influence how it can be closed, as different liquidation procedures are required based on that status.
If you’re unsure if your company is solvent or insolvent, or you suspect the latter, you should seek advice from a licensed and regulated insolvency practitioner. They can assess your company’s circumstances, advise on the best way to proceed, and enact the appropriate procedure.
What are my options to close a dormant company?
Depending on its solvent position and the value of its assets, you could close a dormant company through one of the following processes:
- Dissolution: if the company is solvent, without assets
Dissolving a company removes that company from the Register of Companies at Companies House, and sees it closed in an orderly manner. There is a list of criteria that the company must fulfil for three months before you apply to dissolve it:
- No administrator or receiver appointed.
- The pension scheme must be finalised.
- Not subject to prosecution or disqualification.
- Hasn’t undergone a name change.
- Must have stopped trading.
- Can’t have disposed of stock.
Trying to dissolve without ensuring the above can lead to an unsuccessful dissolution, or the company could be reinstated if a creditor objects.
- Members Voluntary Liquidation (MVL): if the company is solvent, with assets
An MVL formally winds up and closes a solvent company where there is an amount of assets to extract that would justify the procedure over a dissolution. It allows you, and the other directors and shareholders, to take advantage of various tax benefits, including Business Asset Disposal Relief, which reduces the amount of Capital Gains Tax paid. - Creditors Voluntary Liquidation (CVL): if the company is insolvent
A CVL closes insolvent companies where that would be the best course of action, or where recovery attempts have failed. Trading operations cease, the company’s assets are realised, and all creditor action stops. Employees are made redundant and can claim for redundancy and other statutory entitlements. Once the liquidation concludes, all the company’s remaining unsecured debt is written off, leaving you free to walk away and start afresh.
To summarise
If you register your company as dormant, it doesn’t necessarily have to close. Your company could stop trading and go dormant for several reasons, many involving preserving an existing company name. The company’s solvent position will have a considerable bearing on how you’ll proceed, and you should seek advice from a licensed and regulated insolvency practitioner if you’re unsure of the company’s solvent position, or if you suspect it may soon become insolvent. They will assess your situation and advise you on the solution that best fits your situation.
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