Solvent Liquidation: Advice for Shareholders and Directors

What you need to know about liquidating a solvent limited company

If you’re looking to close down a company that’s run out of money, you’ve got two main choices: 

 

1. 1. striking off 

1. 1. liquidation. 

The best option for you will depend on how much cash and assets the company has.

For details on closing an insolvent company, check out our dedicated page on Closing a Limited Company. To understand more about the liquidation process, look at our page on How Much It Costs to Liquidate a Limited Company.

 

Striking off vs Members’ Voluntary Liquidation (MVL)

A solvent company means it doesn’t owe any money, whether it’s to staff, suppliers, or HMRC.

But even if a company is solvent, it might not have much, if any, money in the bank. Maybe it didn’t make much revenue, has been inactive for years, or you never really did business with it. If that’s the case, simply striking it off through the dissolution process is often the quickest and cheapest way to close it down. 

Alternatively, if your company has a lot of money to give out to shareholders, you can get help from an insolvency practitioner and formally close it through a Members’ Voluntary Liquidation (MVL). This process gives you more control over distributing the company’s assets and lets you benefit from Business Asset Disposal Relief (formerly Entrepreneurs’ Relief). Depending on your situation, this could mean big tax savings compared to taking the money out as a dividend.

 

Striking off and ‘bona vacantia’ 

If your company is solvent, you can apply for it to be removed from the register held at Companies House by filling out a DS01 form. This will close the business in a relatively fast and cheap way. The fee for removal is currently £8 if you apply online. If there are no objections, your company will be dissolved two months after you submit your request. Before applying for removal, make sure your company hasn’t traded, sold any stock, or changed names in the past three months. The removal process is also called dissolution or dissolving a company.

Before you do this, you should know about the rules regarding ‘bona vacantia’. This means that all assets of the company will go to the crown once it’s dissolved. Assets include cash, land, property, copyrights, trademarks, and other intellectual property. So, it’s crucial to extract all assets before applying for removal.

 

Read More: 

• What is a Distribution in Specie 
• How much does a Members’ Voluntary Liquidation cost
• MVL vs Strike Off: Options for Solvent Companies
• What is a signed indemnity in an MVL

 

Members’ Voluntary Liquidation and Business Asset Disposal Relief

There’s no denying that an MVL comes with a higher price tag compared to a striking-off application. However, by choosing this route, you can make sure you’re extracting the company’s assets in the most cost-effective way, and you’ll also benefit from Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).

Business Asset Disposal Relief allows you to pay a reduced 10% rate of Capital Gains Tax (CGT) when you sell, dispose of, or close your company. To qualify, you must own at least 5% of the company for at least a year. There’s a lifetime limit of £1 million worth of capital gains for this scheme.

Opting for an MVL ensures the most tax-efficient closure of your company, maximising returns for shareholders. Additionally, you can have peace of mind knowing that the company has been closed down in full compliance, and your obligations as a director are fulfilled.

To learn more about MVLs, Business Asset Disposal Relief, or any other aspect of company liquidation, contact Vanguard Insolvency today. You can schedule a same-day appointment with a licensed insolvency practitioner who will discuss all available options for you and your company, and provide tailored advice. With 100 offices across the UK, expert and confidential assistance is always within reach.