Closing a Limited Company

A Limited Company's closing process depends on the company's financial situation. In the case of companies that have liabilities at the time of closure, the liquidation process is applied. This is a legal process, during which a company liquidator is appointed, which carries out subsequent stages leading to the closure of the company.

There are three main types of liquidation:

1.Members’ Voluntary Liquidation. In this case, the members decide to liquidate the company as it is solvent, i.e. has sufficient funds to pay all the liabilities to its creditors. Members themselves appoint the liquidator and pay them for their services (from the company's assets).

2. Creditors’ Voluntary Liquidation. In this case, the members also decide to liquidate the company, however the company is insolvent i.e. does not have sufficient funds to pay all liabilities to its creditors. Because of this, it is the creditors which appoint a liquidator and pay him for his services (from the company's assets, if there are any).

3. Compulsory Liquidation. In this case, the court issues a liquidation order. As a rule, this order is issued at the request of someone who the company owes money. In some cases, the directors of the company may apply for such an order, usually in the event that neither they nor the members are able to cover the costs of voluntary liquidation. The court designates and covers the cost of the liquidator. The court may recover some or all of these costs by selling the company's assets.

An alternative and much easier method of closing the company is “dissolution”. This is the ideal way to close a company which does not have any debts. This method can also be used to close insolvent companies, but in this case the closure of the company is not guaranteed. In general, the method is based on:

The gradual abandonment of all business activities
Informing employees and issuing P45s
Cancellation of the VAT registration
Repayment of all creditors including HMRC
Informing the relevant offices
Closing of the bank account
Completion of settlements
Selling the company's assets
Proportional distribution of property between shareholders
Submitting an appropriate application to Companies House

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