Company dissolution – everything you need to know

Company dissolution is a formal process whereby a company is closed down and removed from the official register at Companies House. This process is also referred to as ‘striking off’ a company. When a company has been officially dissolved, it ceases to exist as a separate legal entity and can no longer trade.

In this post, we look at company dissolution in detail, including why you might dissolve a company, the difference between voluntary and involuntary strike-offs, eligibility criteria, and how to make a company dissolution application.

Why dissolve a limited company?

Company dissolution is often a voluntary process initiated by directors. However, as the official registrar of companies in the UK, Companies House has the power to dissolve companies by force.

This is known as involuntary dissolution. It usually happens when a company fails to maintain certain statutory obligations, such as filing confirmation statements, annual accounts, and tax returns.

Common reasons for voluntary dissolution

There are many reasons why people choose to dissolve a company voluntarily. Some common examples are as follows:

• The company never began trading, so it is no longer required
• The business enjoyed early success but is no longer viable
• To change the legal structure of the businesses (e.g. converting from limited company to sole trader or business partnership)
• The owner no longer wants to run the company and instead wishes to move to employment or start a new business
• The company owner passes away, becomes ill, or wants to retire, but there’s no one to take over the company
• To re-register a company in a different UK jurisdiction. It is not possible to change a company’s jurisdiction of incorporation (e.g. from Scotland to England & Wales), so dissolving the company and registering a new one in the preferred jurisdiction is the only option in such instances
• The company was incorporated for the sole purpose of protecting a company name, but the name is no longer required

Another common reason for voluntary strike-off is to avoid paying late filing penalties for missing the annual accounts filing deadline at Companies House.

When accounts are overdue, the company will automatically incur a fine when it eventually files them. So, rather than delivering their annual accounts after the deadline and paying a late filing penalty, some people dissolve their companies instead. Surprisingly, Companies House permits this.

These are just a few examples to give you a general idea of why someone might dissolve a limited company. Ultimately, it will be because the directors or members decide the company is no longer required.

You don’t need to provide Companies House with a reason when applying for voluntary company dissolution.

Common reasons for involuntary dissolution

Involuntary dissolution (forced dissolution by Companies House) occurs if the registrar believes the company is no longer in business or carrying on operations. Companies House may take this view if:

• The company has failed to keep up with its statutory reporting obligations, such as filing confirmation statements, annual accounts, or Company Tax Returns
• Official mail that Companies House has issued to the company’s registered office address is returned undelivered
• The company does not have any directors (e.g. if the sole director resigns or passes away and no one replaces them) 

Companies House will take all reasonable steps to determine if the company is still operating before moving to dissolve it.

What to do before applying for company dissolution — important steps

Before applying for company dissolution, you must close down the business legally. To do so, you will need to carry out the following steps:

1. Tell HMRC and all other interested parties (e.g. company shareholders, staff, suppliers, lenders) that you plan to strike off the company. You must do this within seven days of submitting your application to Companies House.
2. Ensure that all employees are treated in accordance with Employment Law rules. This includes following staff redundancy rules and paying final staff wages.
3. Tell HRC that the company has stopped employing people. 
4. Deal with all business assets and accounts, distributing any assets to eligible shareholders based on their percentage of shareholdings and rights to capital upon winding up.
5. Pay all outstanding business debts (or confirm that the company can do so). 
6. Complete final statutory accounts and a Company Tax Return for HMRC. You must state that they are the final trading accounts and that the company will soon be struck off.
7. Close all business bank accounts in the company name.

Any business bank accounts in the company name that remain open will be frozen from the date of dissolution. This is why it is essential to transfer credit balances, close your company bank accounts, and transfer ownership of any other business assets before applying to dissolve a company.

If you fail to do so, everything will pass to the Crown. You will need to restore the company to get these assets back.

How to dissolve a company voluntarily

To dissolve a company voluntarily, the directors (or a majority of them) must give their formal approval by passing a board resolution. This can be done by voting in person at a board meeting or remotely via written resolution.

However, some companies may include different provisions in their articles of association or shareholders’ agreement, whereby the members must approve any striking-off application. Check your articles and shareholders’ agreement beforehand if you’re unsure.

If a majority of the directors (or members) approve the dissolution, they can apply to Companies House on form DS01.

The form must include the following details:

• Full company name
• Company registration number
• Name and signature of the sole director (if only one), both directors (if there are two), or the majority of directors (if there are more than two)
• Date of signatures
• Name and contact details of the person presenting (filing) the form

You can file the form online via the Companies House WebFiling service or send it by post. You must include the filing fee of £33 (online application) or £44 (postal application).

Alternatively, you can ask Rapid Formations to take care of this for you by purchasing our Company Dissolution Service. This service is available to existing clients and non-clients alike. Priced at just £69.99 plus VAT, we’ll take care of your company’s dissolution from beginning to end, ensuring everything goes as smoothly as possible.

Eligibility criteria for voluntary company dissolution

The business must meet certain criteria to be eligible for voluntary company dissolution. These conditions are set out in section 1004 and section 1005 of the Companies Act 2006.

You can only apply to strike off a company if it:

• Has not traded, sold off any of its stock, or otherwise carried on business in the last three months
• Has not changed its name in the previous three months
• Is not the subject of any insolvency proceedings (e.g. liquidation) or a section 895 scheme
• Does not have existing agreements in place with creditors – e.g. a Company Voluntary Arrangement (CVA)
• Does not have any bearer shares in issue
• Has not engaged in any activity other than one which is necessary for the purpose of:
  • making an application for dissolution or deciding whether to do so (e.g. seeking professional advice regarding the application or paying the strike-off application filing fee)
  • winding up the affairs of the business (e.g. settling trading or company debts)
  • complying with statutory requirements
  • making a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business*

*For example, if your company was in the business of selling flowers, you would be prohibited from selling flowers during the three months before making a company dissolution application, but you would be permitted to sell the van that you previously used to deliver your flowers.

If you are a director, you must not resign before making a company dissolution application. You must be a director of the company when the registrar receives your application.

When Companies House receives your company dissolution application

Once your company dissolution application has been received, Companies House will examine it. If the form is acceptable, the registrar will take the following actions:

1. Register the proposed dissolution information and publish it on the public register of companies
2. Send an acknowledgement to the contact address stated on the application
3. Send a notification to the company’s registered office address – this is to enable the company to object if the application is fraudulent
4. Publish notice of the proposed company dissolution in The Gazette – this is to give interested parties an opportunity to object
5. Publish a copy of The Gazette notice on the public register

Provided that no objections are raised and there are no reasons to delay the dissolution, Companies House will strike off the company from the public register not less than two months after the date of the notice.

The company will be dissolved, and another notice will be published in The Gazette stating that the company has been struck off.

What is The Gazette?

The Gazette is the official journal of record in the UK. There are three publications, each of which announces statutory notices, including company strike-off and restoration notices, relevant to one of three UK jurisdictions:

• The London Gazette – for companies registered in the jurisdictions of England & Wales and Wales only
• The Edinburgh Gazette – for companies registered in the jurisdiction of Scotland
• The Belfast Gazette – for companies registered in the jurisdiction of Northern Ireland

When Companies House publishes a strike-off or restoration notice, it appears in the weekly Gazette for the part of the UK where the company is registered.

Who to notify after making a company dissolution application

Within seven days of filing your striking-off application, you must send a copy to anyone who may be affected by the company’s closure. This includes the following:

• Shareholders or guarantors (the members of the company)
• Creditors, such as banks, suppliers, landlords or tenants, guarantors, personal injury claimants, former employees (if the company owes them money), and HMRC
• Employees and workers 
• Managers or trustees of employee pension funds you have in place
• Any directors who didn’t sign the application form

You also need to send a copy of the striking-off application to anyone who, at any point after making the application, becomes one of the following in relation to the company:

• Director
• Member
• Creditor
• Employee
• Manager or trustee of employee pension funds you have in place

You’ll need to do this within seven days of the person assuming one of these positions relating to the business.

How long does it take to dissolve a company voluntarily?

Once you have filed a company dissolution application at Companies House, it typically takes two to three months for the company to be struck off the register. This is due to the two-month period set aside for interested parties to make an objection following the publication of the dissolution application in The Gazette.

Dissolved company information on the Companies House register

Even after a company has been dissolved, Companies House will continue to hold information on it. Furthermore, company formation and dissolution files will remain on the public register for 20 years after a company has been struck off.

After 20 years, Companies House has an agreement to transfer a selection of dissolved company records to The National Archives (TNA).

TNA will direct the registrar to destroy any records that haven’t been transferred. The public can request any company documents that are transferred to The National Archives.

Following the UK government’s response to the Corporate Transparency and Register Reform consultation, Companies House has:

• stopped removing dissolved company records from its ‘Find and update company information’ service
• added the records of every company dissolved since January 2010 to this service

Previously, the registrar removed records of dissolved companies from the service six years after the date of company dissolution. These records are now available for 20 years on other Companies House products for a fee.

Difference between company dissolution and company liquidation 

Dissolving a company is suitable for a solvent company that is no longer trading. It is a voluntary procedure and the most appropriate if the company’s situation is straightforward and it can pay its debts. 

Conversely, liquidation occurs when a company is facing financial difficulties and can’t pay its debts, or when the total of its liabilities is greater than its assets. Liquidation is often the only course of action available for closing an insolvent company.

Company liquidation is a formal procedure requiring the appointment of a licensed insolvency practitioner (or official receiver) as a liquidator. They will take charge of the company from its directors and run the entire liquidation process. 

If the directors of an insolvent company continue trading when the business enters insolvency, they can be held personally liable for some or all of the company’s debts. They may also face director disqualification and prosecution. 

Closing a company with debts

Dissolving a company without debts is relatively straightforward. However, if the company has debts with HMRC or other creditors that it can’t afford to pay, the creditors will most likely file an objection to the company dissolution application.

Creditors also have the right to object if they have any other viable reason. For example, if they believe the company has not been closed down with the correct information. They must do so within two months of the date of the notice in The Gazette.

See also: Closing a company with debts to HMRC See also: Are company directors liable for its debts? See also: 25 financial terms every business owner should know

In these situations, your company dissolution application will be rejected. You will need to initiate another type of closure suitable for closing a company with debt.

Different options are available for closing a company with debts (an insolvent company). Depending on your circumstances, you can:

• put the company into administration
• arrange a creditors’ voluntary liquidation (CVL)
• apply to the court for compulsory liquidation

If you’re unsure which of these options is most suitable for your company, you should seek professional advice from a solicitor, accountant, financial advisor, or authorised insolvency practitioner.

You can also contact Citizens Advice, Business Debtline, or the Insolvency Service helpline for free, impartial advice on dealing with your business finances and debts.

Do you need help dissolving a limited company?

We hope this article has provided valuable insight into company dissolution in the UK, including the most common reasons for dissolving a company, the difference between voluntary and involuntary strike-offs, and how to make an application to Companies House.

If you have any questions or need help setting up or dissolving a company, please leave a comment below. Alternatively, contact our London-based team of experts.

Explore the Rapid Formations Blog for more limited company guidance and small business advice.