Should I close my company or make it dormant?

Which is the best option for my limited company?

You need not close your company if it’s no longer trading. Opting to make it dormant could be a more suitable choice. This allows you to swiftly revive the company in the future and safeguards your trading name from being used by others.

Closed or dormant – what are my options?

Choosing between closing your limited company and making it dormant is a significant decision. Closing a company draws a definitive line, ending its existence as a legal entity and relieving you of ongoing administrative and accounting obligations.

On the other hand, keeping your limited company dormant allows the option of future use. You can keep a limited company dormant indefinitely, albeit with some minor administrative responsibilities.

What is a dormant company?

A dormant company is no longer active and has refrained from engaging in any business transactions during its financial year. However, it still exists legally and retains its place on the Companies House register.

If you wish to take a break from actively managing the company for a defined period or explore new challenges, while leaving the option open for a potential return in the future, choosing dormancy could be the most suitable option.

Reviving trading activities for a dormant company is feasible at any time. Upon recommencement of trading, you must register for Corporation Tax within three months and submit accounts to Companies House within nine months of your company’s year-end.

How do I make my company dormant?

Even when your company is inactive, you can take a few straightforward steps to officially declare it as dormant:

• Halt business operations, settle any outstanding debts with creditors, and terminate any remaining contracts with utility providers, customers, suppliers, etc.

• Pay any outstanding tax liabilities to HMRC, and inform your local Corporation Tax Office that your company is now dormant.

• While there’s no requirement to inform Companies House directly about dormancy, you must file a confirmation statement and submit dormant accounts annually. Dormant accounts are a simplified version of your usual annual accounts.

What are the benefits of making my company dormant?

Opting to make your limited company dormant instead of closing it down provides several benefits and a degree of flexibility for the future:

• Maintaining a dormant company is inexpensive compared to the administrative costs involved in closure.

• There’s no set time limit for keeping a company dormant, allowing you the freedom to decide when to reactivate it.

• You can postpone making any firm decisions about the company’s future, giving you time to assess your options.

• Keeping the company dormant safeguards its trading name from being used by others.

However, it’s essential to be aware that certain administrative obligations must be met to keep the company dormant, although they are generally straightforward.

Closing a limited company

If your intention is to permanently cease trading and you’re certain that you won’t need the company again, closing it down is the most appropriate course of action. Closing a company involves removing it from the Companies House register, resulting in the termination of its existence as a legal entity.

Closing the company offers the advantage of ending all administrative and accounting obligations, allowing you to move forward and conclude the business. However, it’s important to note that if you decide to resume trading, you’ll need to establish a new limited company, and there might be restrictions on using the same trading name.

How do I close my company?

Indeed, the method of closing a limited company depends on its solvency status and the value of its assets. 

I. Dissolving a company

Closing a solvent company through Voluntary Strike-Off is indeed a straightforward process, as you’ve outlined. It’s a cost-effective option for companies that meet the specified criteria. If the company has ceased trading, can pay its debts, and has assets worth less than £25,000, directors may find this method convenient.

However, it’s important for directors to ensure that all legal requirements are met, such as settling outstanding liabilities, closing the payroll, and informing relevant parties of the intended closure. Additionally, following the correct procedures and adhering to the specified timeline is crucial for a smooth Voluntary Strike-Off process.

II. Liquidating a company

If your firm possesses substantial assets or faces insolvency, you must adhere to a liquidation procedure.

• Your company is solvent  – For financially stable firms with assets exceeding £25,000, opting for a Members’ Voluntary Liquidation (MVL) is typically the most tax-efficient method to cease operations. Withdrawals from the company will incur capital gains tax instead of income tax, resulting in significant tax savings.

• Your company is in debt – In the case of insolvency, you can voluntarily shut down your company through a Creditors’ Voluntary Liquidation (CVL). Under this process, a liquidator is appointed to settle the company’s debts using the proceeds from asset sales before deregistering it. This proves to be an effective way to close a struggling company before its financial situation worsens.

What are the benefits of closing my company?

Opting to close your company is a prudent decision if you are certain about not intending to trade again. The advantages include:

• Elimination of administrative and accounting responsibilities for a smoother transition
• Striking off your company is a swift and cost-effective closure method
• Liquidating a financially stable company allows tax-efficient extraction of its value
• Liquidating an insolvent company helps alleviate creditor pressure and the threat of legal action

However, the drawback is that if you decide to resume trading, you will need to undergo the company formation process again. It is crucial to ensure the proper closure of your limited company, as failure to do so may result in significant tax implications or creditors seeking restoration to the register if outstanding debts persist.

Read More:

• What tax do I have to pay when closing my company
• Can I close a company with debts and start again
• Closing a company with debts and no assets
• When will Companies House not allow you to close your limited company
• What should I do with my company if I am retiring

Closed or dormant – Which is right for you?

If you’re uncertain about whether to close your company or place it in dormancy, we can assist you. We offer a confidential, complimentary evaluation to determine the most suitable approach for your situation. Contact us for a consultation on the same day or schedule a meeting at any of our 100+ offices across the nation.