What should I do with my company if I am retiring?

What are my options and how will they affect my retirement?

Retiring as an employee is a straightforward process. You submit your resignation, fulfill your notice period, and then embrace all that retirement has to offer. As a company director, it demands a bit more consideration. You must contemplate what you will do with the business and then take the necessary steps, which may include closing the company. We explore your retirement options as a company director and discuss which could be the most suitable for you.

 

What are the retirement options for company directors?

I. Pass the company on to a family member

If you have a family member already involved in the business, handing over the reins could be a relatively straightforward solution. This transition can be gradual, aligning with your retirement timeline and allowing sufficient time to bring them up to speed.

While leaving a family business as a multi-generational legacy is commendable, the practical aspects require careful consideration. If you are financially secure, you might opt to gift the business to a family member without expecting any return. However, this decision necessitates weighing the impact on senior employees and family members not involved in the business.

Alternatively, if you need a lump sum from the company to ensure a comfortable retirement, selling the business can provide both financial stability for your later years and create buy-in for the family member. If outright purchase is not feasible for your family members, you might explore a combination of selling and gifting, known as a partial sale. This approach makes the business more affordable for your family member while still providing you with a lump sum.

 

II. Sell the company to a third party

Another option is to sell the company to an interested third party. Prospective buyers may include new startups looking to enter your market, competitors, other shareholders within the business, and even employees.

This can be an appealing solution as it allows you to realise the value you’ve accumulated in the business over the years and receive a lump sum to contribute towards your retirement.

The approach you take depends on whether your business is a sole trader/general partnership or a limited company.

• Sole trader/general partnership

As a sole trader or partner, there is no separation between your assets and the assets of the business. If you wish to sell the business, it would involve an ‘asset sale.’ This entails selling the assets and goodwill of the business to a buyer who will continue to operate it as a going concern.

• Limited company

A limited company is a distinct legal entity from its owner, providing more options for its sale. You can still choose an ‘asset sale,’ selling some or all of the assets and goodwill to a buyer while maintaining ownership of the company shares.

Alternatively, you may opt for a share sale, where you sell all your shares in the company. In this scenario, the assets will remain owned by the limited company, but there will be a new owner. This facilitates a smooth transition of ownership, keeping all the assets intact.

If the company has other shareholders, you cannot sell the company without their approval. However, you have the option to sell your shares in the business, either to existing shareholders or another party, before resigning as a director.

 

Close a solvent company via a Members’ Voluntary Liquidation

Selling a company is not always a feasible option. You may lack family members interested in continuing the business, or it may be unsustainable without your unique skills. In such cases, the best solution might be to use a Members’ Voluntary Liquidation (MVL) to close the company and extract the value from its assets.

In an MVL, you must appoint a liquidator to handle the business closure. They will identify and sell the company’s assets, using the proceeds to repay any creditors before distributing the remaining funds to you. Subsequently, they will strike the company off the Companies House register, and it will cease to exist as a legal entity.

A Members’ Voluntary Liquidation is likely the most tax-efficient method to close your business if it possesses assets valued at more than £25,000. This is because all proceeds extracted from the company are subject to capital gains tax rather than income tax.

 

Close a solvent company via strike-off

If there are no buyers for the business, and its assets are valued at less than £25,000, the easiest method to close the company is to strike it off the register of companies. This is a simple and cost-effective process that you can undertake yourself.

You can only apply for strike-off or dissolution if the company is solvent, faces no liquidation threats, and has not engaged in trading in the last three months. The process generally takes about three months. It’s crucial to sell or transfer any company assets before the business is struck off the register, as they would otherwise become the property of the Crown.

 

Close an insolvent company via a Creditors’ Voluntary Liquidation

If your company is facing financial challenges, and you believe it’s time to cease operations, a Creditors’ Voluntary Liquidation (CVL) may be the most suitable method for closure.

In a CVL, you designate a liquidator to identify and sell the company’s assets, distributing the proceeds to the creditors. Subsequently, the company will be struck off the Companies House register, and any outstanding debts will be written off.

This can serve as an effective approach to conclude the affairs of a struggling company, allowing you to enter retirement without the burden of creditor pressure and the looming threat of legal action.

 

Keep the business and hire someone to run it

You are not obligated to sell or close your company upon retirement. If you do not require a lump sum for your retirement, an alternative option is to maintain the business as a going concern and hire a managing director to oversee its operations. This allows you to step back from day-to-day responsibilities while still generating income.

Numerous directors opt for this approach to transition into semi-retirement, continuing to work part-time as a consultant for their own company. This arrangement can offer the challenges and camaraderie that company directors often miss when fully retiring. 

 Read More:

• How much does it cost to close a company in the UK
• Should I close my company or make it dormant
• 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

 

Plan your exit well in advance

With a variety of retirement options available for company directors, it is advisable to plan your exit well in advance. Whether you are considering selling your company or opting for liquidation, we can assist you in carefully evaluating each path and offer confidential advice. Feel free to reach out to discuss your options with an adviser or arrange a meeting at one of our 100+ UK offices.