The dissolution of a business refers to the process of removing the name of a company from the official register at the Companies House. This process can also be referred to as ‘striking off’. Once a business has been dissolved, it ceases to exist legally. A business dissolution may be voluntary or imposed by the Companies House. Let’s take a closer look at the main factors leading to the dissolution of a business.
What Are The Reasons For Dissolution Of Business?
A company director may choose to voluntarily dissolve their company for the following reasons:
- It has come to the end of its useful life
- It is struggling with cash flow problems
- Insolvency
- Succession-plan failure
A company can also be forcibly struck off for one of the following reasons:
- Failure to submit timely accounts
- Failure to submit an annual confirmation statement
- Failure to conform to legal requirements
- The company having no appointed directors
- The company having ceased trading
Criteria For Dissolution Of Business
In order to proceed with voluntary dissolution, the company must:
- Not have traded or sold off any stock in the last 3 months
- Not have changed names in the last 3 months
- Not be threatened with liquidation of any other type of insolvency proceedings, or have agreements with creditors such as a CVA
Is Dissolution Of Business The Same As Liquidation?
Whilst they both involve closing a company down, the liquidation and dissolution of a business are not the same thing. Liquidation involves extracting assets from a company and using them to pay off outstanding debts. Dissolution on the other hand, involves removing the business from the Companies House. Creditors Voluntary Liquidation (CVL) can be a useful liquidation process for insolvent companies. An alternative to dissolution for solvent companies is Members Voluntary liquidation (MVL), which is a tax-efficient method for closing a company down, and ensuring that all affairs of the business are wound up correctly.
What Is The Process For Dissolving A Company?
In order to apply for the dissolution of a business, you’ll need to file a DS01 form which goes to the Companies House. This can be done online. The form will need to be signed by the majority of shareholders and all relevant parties, including creditors, employees and shareholders must be notified. The business dissolution will be advertised in the Gazette, with the company being officially dissolved, 3 months after the notice has been placed.
It’s important to note that voluntary dissolution is not possible for insolvent companies. If your company is insolvent and you would like to close it down, then you will need to go down the path of liquidation. Alternatively, you could look at strategies for recovering the company, such as a Company Voluntary Arrangement (CVA) or administration.
If you are looking to liquidate your business or would like to hear more about the business recovery options that might be available, please don’t hesitate to get in touch with us. Our experienced team of business rescue specialists and insolvency practitioners will be able to assess the individual requirements of your company, and advise on the most suitable course of action from there.
