What Does it Mean to Strike Off or Dissolve a Limited Company?
Striking off, a term synonymous with company dissolution, entails the removal of a company from the Companies House register, effectively terminating its legal existence.
This process can be initiated voluntarily by the company or mandated by external factors. This comprehensive guide delves into the legal prerequisites, procedures, eligibility criteria, implications for directors, and avenues for restoration.
What is the meaning of "striking off a company" in the UK?
Striking off a company, also known as dissolving a company, is the procedure of removing a limited company from the Companies House register.
Once a company’s name is removed from the register (using Form DS01), it ceases to exist.
There are two types of company strike-off:
- Voluntary strike-off: This occurs when the company’s directors choose to dissolve the company. A company can only be legally dissolved if it is solvent and has paid all its debts.
- Compulsory strike-off: This occurs when another party, typically Companies House, petitions to have the limited company struck off. It is important to note that only solvent companies can be dissolved; any outstanding debts must be paid in full before the company is closed.
Dissolving a company can be a straightforward and cost-effective method of closing down a solvent company with no assets. In all instances, it is advertised in The Gazette, the official journal of public record.
Striking off enables the directors to maintain complete control over the business throughout the process. Although creditors must be repaid prior to closure, there is no obligation to hold a formal creditors’ meeting.
What is Dissolution?
Dissolution and strike off are two closely related terms, but they represent distinct phases in the process of terminating a company’s existence.
Strike off involves removing a company’s name from the Companies House register, while dissolution is the consequence of the strike off procedure.
Upon being struck off, the company is dissolved, rendering it no longer a legal entity. While the terms are often used interchangeably, strike off refers to the process itself, and dissolution signifies the final outcome.
Reasons to Dissolve a Company via Strike Off
When a company’s owner or owners reach retirement age and there is no viable successor to take over the business, dissolving the company may be the most prudent course of action.
Pursuing New Ventures:
An entrepreneur may decide to close an existing business to pursue new opportunities. If the company is profitable, selling it to a suitable buyer should be considered. However, if no suitable buyers emerge, applying to dissolve the company is a viable option.
Restructuring Corporate Groups:
Sometimes, a company becomes redundant within a corporate structure. Following a group reorganization, a company may become an empty shell, with its assets transferred elsewhere. In such cases, dissolution offers a cost-effective means of closure.
If a company consistently fails to generate sufficient profits and lacks the potential for sustainable growth, applying for dissolution may be the most sensible decision.
Disagreements among directors or shareholders can significantly hinder a company’s operations. If these conflicts cannot be resolved, dissolving the company may be the only viable solution.
Failed Startup Efforts:
Occasionally, a company fails to secure the necessary funding or achieve the desired traction. Dissolution may be the immediate solution, or it might be postponed until the company can be revitalized.
Anticipating Future Challenges:
While a company may be currently solvent, it may face future challenges, such as increased competition or declining sales. Dissolution may be considered as a preemptive measure to mitigate potential risks.
Essential Steps to Take Before Striking Off Your Limited Company
Before formally dissolving your limited company, it is crucial to undertake several essential steps to ensure a smooth and legally compliant process. These actions help protect your interests, fulfill your obligations, and prevent any potential complications.
1. Fulfill Pending Obligations and Collect Outstanding Revenue
Prior to striking off your company, ensure all pending work is completed and any outstanding revenue, including customer payments and invoices, is collected. This includes completing any remaining orders, providing final services, and issuing invoices for any unbilled work.
2. Dispose of Company Assets and Inventory
Sell or dispose of all company assets, including equipment, inventory, and any other tangible property. Distribute the proceeds from the sale of assets among the company’s shareholders according to their respective ownership interests.
3. Finalize Financial Records and Tax Returns
Prepare final accounts, including a balance sheet and income statement, for the company’s entire lifespan. Additionally, complete and submit a company tax return to both HMRC (Her Majesty’s Revenue and Customs) and Companies House.
4. Settle Outstanding Tax Liabilities
Pay any remaining tax liabilities to HMRC, ensuring that all tax obligations have been met. This may include corporation tax, PAYE (Pay As You Earn) income tax, and VAT (Value Added Tax).
5. Close Company Payroll Scheme
Notify HMRC to close down the company’s payroll scheme. This ensures that no further payroll deductions or payments are made.
6. Deregister for VAT, if Applicable
If your company was registered for VAT, inform HMRC to deregister it. This will prevent any further VAT charges or obligations.
7. Settle Outstanding Debts
Pay off all remaining debts owed by the company to creditors and suppliers. This includes settling any outstanding invoices, loans, or other financial obligations.
8. Close Company Bank Accounts
Close all company bank accounts and transfer any remaining funds to the shareholders or directors according to the agreed-upon distribution plan.
9. Transfer Website Domain Names and Terminate Services
Transfer ownership of website domain names to the appropriate individuals or entities. Cancel any remaining monthly services, such as utilities, insurance, or subscriptions, to avoid ongoing charges.
By completing these essential steps, you can ensure a smooth and compliant process of striking off your limited company, protecting your interests, fulfilling your obligations, and preventing any potential legal or financial repercussions.
Navigating the Dissolution of Your Limited Company: A Step-by-Step Guide
1. Securing Consensus among Stakeholders
Initiating the company dissolution process requires the written approval of both directors and shareholders. Convene a board meeting to pass an ordinary resolution authorizing the strike-off application. Document the meeting minutes, emphasizing the settlement of all outstanding debts or obligations. Additionally, directors must sign a Declaration of Solvency.
2. Resolving Debts and Obligations
Prior to announcing the company’s closure, make every effort to recover outstanding payments. Delaying collection could encourage debtors to withhold payments. Consider offering discounts for prompt payment or selling off hard-to-collect debts to a factoring agency.
3. Completing Pending Work and Contracts
Ensure the completion of all ongoing work and the payment of all outstanding debts. Fulfill existing customer contracts or negotiate early terminations. Failure to complete work or settle debts could result in personal liability for directors and shareholders.
4. Liquidating Assets and Inventory
Sell off any remaining stock or company assets to generate funds for debt repayment, tax obligations, employee compensation, and loan settlements. Distribute any remaining funds to the company’s owners.
5. Notifying HMRC and Deregistering for VAT
Inform HMRC of the company’s impending closure by submitting final accounts, a company tax return, and letters from shareholders and directors confirming the situation. A single letter suffices if directors and shareholders are the same.
Settle outstanding PAYE, NI, Corporation Tax, and other tax liabilities. Deregister for VAT if applicable. Pay final wages and salaries to employees before requesting HMRC to close the company’s payroll scheme.
6. Submitting Form DS01 and Declaration of Solvency
Within 15 days of passing the resolution, send the resolution and Declaration of Solvency to Companies House. Complete and submit Form DS01 along with a £10 filing fee. A majority of directors must sign the form if there are three or more.
Upon receiving Form DS01, Companies House will verify the information and provide confirmation via mail. The strike-off application becomes an Active Proposal to Strike Off at this point.
7. Publishing Notice in Gazette and Notifying Interested Parties
A notice will be published in the relevant Gazette (London, Edinburgh, or Belfast) announcing the intent to strike off the company and inviting objections from interested parties within three months.
Within seven days of submitting Form DS01 to Companies House, send copies to all interested parties, including employees, shareholders, company creditors, non-signing directors, and trustees of any employee pension funds.
8. Addressing Remaining Loose Ends
Close business bank accounts, cancel licenses, transfer website domains, and terminate utilities and other monthly services.
9. Company Dissolution and Cessation
If no objections are raised in the Gazette notice after three months, a further notice will be published confirming the company’s dissolution. The company will then cease to exist.
10. Ongoing Director Liability
Despite the company’s dissolution, directors’, officers’, and shareholders’ liabilities remain. The Court may reinstate the company if creditor claims arise. If the company trades, changes its name, disposes of assets, or enters into an insolvency process, the strike-off application will be withdrawn.
11. Unappropriated Assets Escheat to the Crown
Any remaining assets that have not been distributed upon dissolution become the property of the Crown.
How Long Does Striking off a Company Take
The removal of a limited company from the Companies House register takes a minimum of three months. This is due to a two-month window during which interested parties can raise objections to the strike-off. Upon the absence of objections, the company will be dissolved and cease to exist.
How Long Does Striking off a Company Take
The cost of a voluntary strike-off typically includes the Companies House fee of £10 and any additional legal or professional fees incurred if you utilize a third-party service to facilitate the process.
While there are no direct costs associated with a compulsory strike-off, legal or professional fees may arise from responding to the strike-off notice or resolving any outstanding compliance concerns.
Potential Drawbacks of Striking Off a Limited Company
Striking off a limited company may seem like a straightforward way to close your business, but it’s essential to be aware of the potential drawbacks associated with this process. Here are ten key risks to consider:
Outstanding Debts and Creditor Objections: Striking off doesn’t erase debts. Creditors can challenge the strike-off and seek to reinstate the company to pursue unpaid amounts.
Unfulfilled Legal and Tax Obligations: Directors must ensure all legal and tax obligations are met before strike-off. Non-compliance can lead to penalties, personal liability, and potential criminal charges.
Forfeiture of Company Assets: Remaining assets at strike-off become the property of the Crown, including cash, equipment, inventory, and any other valuables.
Director Liability for Wrongdoing: Directors may face personal liability for unpaid debts or wrongdoing if the strike-off is mishandled or the company was insolvent at strike-off.
Potential Delays and Objections: Creditors, suppliers, or other parties can object to the strike-off, causing delays or even preventing it, especially if unpaid debts are at stake.
Impact on Director’s Reputation: A poorly handled strike-off can damage directors’ reputations, affecting their ability to secure future business opportunities.
Risk of Future Claims and Legal Action: Unresolved legal claims or disputes may allow claimants to take legal action against the company or its directors even after strike-off, leading to financial liabilities and reputational damage.
Scrutiny from HMRC: HMRC will closely scrutinize the company’s tax records and may take action against directors for irregularities or unpaid tax liabilities.
Ongoing Record-Keeping Requirements: Directors must retain company records for a specified period even after strike-off, which can be an administrative burden if records are not properly organized.
Restrictions on Reusing Company Name: Legal restrictions may prevent you from using the same or a similar company name after strike-off, potentially hindering future business ventures.
Is it possible to dissolve an insolvent company?
Challenging a Company Strike-Off: Protecting Your Interests When a Company Seeks Dissolution
An objection to a company strike-off is a mechanism for creditors and other stakeholders to prevent a company with outstanding debts from being removed from the Companies House register. Creditors, such as HMRC, can halt the strike-off process if they are owed money and can provide evidence of the company’s debts.
While Companies House maintains the anonymity of the objecting party, HMRC is among the most likely entities to intervene if they are owed taxes and have not consented to the strike-off. This stems from HMRC’s responsibility to ensure that all tax obligations have been fulfilled before the company ceases to exist.
In the event that a company with unresolved debts is erroneously struck off, creditors can still pursue payment by applying to have the company reinstated to the register. This could lead to compulsory liquidation, potentially resulting in the company’s assets being sold to repay outstanding debts. Additionally, the directors’ conduct may be investigated to determine if they acted responsibly and fulfilled their legal obligations.
Directors should be aware that HMRC can pursue outstanding tax debts indefinitely, with the possibility of accruing penalties dating back to when the debt was first incurred. If the debt is significant, particularly in the case of VAT or PAYE/NIC contributions, the company directors could face an investigation for fraud, potentially leading to personal liability for the unpaid taxes.
Understanding Company Strike Off and Its Implications for Directors
When a company is struck off the register, it ceases to exist, leaving no directors or company entity. Therefore, directors should act promptly to prevent undesired strike-off proceedings.
While the majority of strike-offs proceed without incident, there are instances where directors may face personal liabilities or disqualification.
In certain situations, directors may be held personally accountable for company debts, particularly if the company was insolvent at the time of strike-off or if directors acted negligently or failed to maintain accurate records.
In severe cases of misconduct, directors may be barred from serving as directors of any other company.
Restoring a Struck-off Company: Administrative Restoration and Court Order
A struck-off company can, under certain circumstances, be reinstated to the Companies House register. Two primary methods exist for achieving this reinstatement:
For companies voluntarily struck off, administrative restoration offers a means of reinstatement within six years of the strike-off date. This process involves submitting an application to the Registrar of Companies along with evidence that the company was actively engaged in business at the time of strike-off. Former directors or shareholders of the company are eligible to make this application.
Alternatively, a creditor of a struck-off company may petition the court for an order to restore the company to the register. This approach is typically pursued when a creditor discovers that the company owes them money and seeks to initiate legal action to recover the debt. Upon granting the restoration order, the creditor may proceed with a winding-up petition to compel the company into liquidation.
No Redundancy Payments Available After Company Dissolution
Redundancy payments are not available to employees of a dissolved company. A company must be actively engaged in business operations to make redundancy payments. Once a company is dissolved, it legally ceases to exist and can no longer employ individuals or make payments to them.
FAQs on Limited Company Strike off & Dissolution
To apply for a company strike off, you must submit a DS01 form to Companies House. Before doing so, ensure that you have met all the prerequisites, such as ceasing trading for at least three months and settling any outstanding debts.
After a company is dissolved, any assets that were not dealt with before dissolution may be claimed by the Crown under ‘bona vacantia’ rules. These assets then belong to the government.
Yes, you must inform Her Majesty’s Revenue and Customs (HMRC) when you apply for strike off. You’ll need to settle your tax affairs and provide final accounts and a Company Tax Return.
Yes, a strike off application can be cancelled. Directors can withdraw the application if the company resumes trading, needs to settle debts, or if the company is to remain active for any reason.
Yes, a company that has never traded can apply for strike off. The process may be simpler as there should be no debts or assets to deal with.
After a company is struck off, you must keep all company records for seven years. This includes financial records, contracts, and correspondence.
Yes, being a director of a struck-off company does not prevent someone from being a director of another company, unless they have been disqualified through legal proceedings.
While not legally required, it is good practice to hold a final board meeting to agree on the decision to strike off the company and ensure that all directors are aware of their responsibilities during this process.
No, a dissolved company cannot continue to trade. Once the company is dissolved, it ceases to exist legally and is no longer able to conduct business, enter into contracts, or manage any form of business transactions. Any activity after dissolution is considered null and void.
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.
- Trusted Source – Legislation – Finance Act 2020, Schedule 3, Entrepreneurs Relief