What does it mean when a business is dissolved

Dissolving a company may sound like a dramatic option, but there are several reasons why it can happen. Whether the business has met its goals and reached the end of its natural life, or financial problems have started to mount, dissolution is one way to close it.

There are many considerations and a few things to know if you’re considering taking this step. read on for more information.

what does it mean to dissolve a company?

dissolving a company is a formal way of closing it down. dissolution refers to the process of “canceling” (removing) a company from the register of the house of companies.

It can be the easiest way to close a company once its directors have decided that it should no longer operate.

how to dissolve a company

If you want to dissolve your company, there are a number of steps you will need to consider.

Can I dissolve my company?

Before you can start dissolving your business, you will first need to meet government requirements. You can only liquidate your business from the company house if:

  • has not traded or sold any shares in the last three months
  • your company has not changed its name in the last three months
  • your company is not under threat of liquidation
  • your company does not have an agreement with creditors, such as a company voluntary arrangement (cva)
  • If you do not comply with all these conditions, you will not be able to dissolve your company. however, you can still liquidate it instead.

    how to close your business

    The next step in dissolving your company is to legally close it. this includes:

    • fire all staff you employ
    • pay your employee’s final salary
    • report to hm revenue & customs (hmrc) no longer employing staff
    • share any business assets between the relevant shareholders
    • submitting your final legal accounts and a company tax return to hmrc
    • pay capital gains tax on any personal gains from assets withdrawn from the business (if you do, you may be eligible for entrepreneur relief)
    • pay your company’s outstanding debts and taxes
    • request the dissolution of your company

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      once you’ve got your house in order when it comes to closing your business, it’s finally time to remove your business from the house of business registry.

      To do so, you must send to the company house a ds01 form, signed by the majority of the company’s directors. the online application costs £8, or £10 for a paper application.

      After you have submitted your request, you have seven days to inform anyone who may be affected by your decision, including shareholders, employees, creditors, and any directors who have not signed the ds01 form.

      As long as the form is completed correctly, your application will be published in the bulletin, the government’s official public record. If no one opposes the dissolution of your business, your company will be removed from the business register after two months from the publication of the notice in the bulletin.

      To confirm that your business no longer legally exists, a second notice will appear in the newsletter.

      why would a company dissolve?

      There are both voluntary and involuntary reasons to dissolve a company.

      Voluntary dissolution often occurs when the directors decide that the business has served its initial purpose and no longer needs to operate.

      It can also happen when partners quarrel and can’t agree on the future direction of a business. directors may also choose to close a company if they see it will be more difficult to keep finances intact.

      A business can also be voluntarily dissolved in the event of insolvency, when cash flow problems or balance sheet problems mean that bills and debts are no longer covered.

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      There are also instances of involuntary dissolution, where the parent company will move to legally close businesses that have fallen behind on responsibilities such as tax returns and accounts.

      » more: can a business survive insolvency/continue to operate if insolvent?

      if a company has debts, can it still be dissolved?

      yes, but only within strict limits.

      A company can usually be dissolved when there is no debt to pay, but it can also be done if the directors can show that outstanding debts can be paid within 12 months. they need to sign what is called a “declaration of solvency”, promising that the company will be able to pay its debts within that period.

      It is important to notify creditors of the plan to dissolve the business, and there can be serious legal consequences for not doing so.

      If outstanding debts are not likely to be settled in 12 months, settlement becomes the most realistic option.

      » more: Can a director be held personally liable when a company goes bankrupt?

      can a dissolved company continue to operate?

      no, dissolving a company means closing it completely.

      Once a business has been removed from the business register, it becomes illegal for it to continue to operate. There are potentially serious legal consequences for the directors of a company that remains active after being wound up.

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      However, it is possible to restore a company to the business house registry, and you can still use the name of the dissolved company if you are setting up a new one, as long as the name has not been taken over since it was deleted.

      conversely, liquidation usually means that the name can no longer be used.

      can hmrc go after a dissolved company?

      yes, there are a number of instances where hmrc might want to take action, including when a company has been dissolved.

      This is because the dissolution process includes paying outstanding tax bills, providing current accounts and filing tax returns, among other responsibilities of hmrc. Naturally, the tax office keeps a close eye on these things.

      Perhaps more importantly, HMRC and other creditors can still go after a company to recover unpaid debts, even after it has been dissolved.

      Can a company be dissolved voluntarily?

      yes, and this happens often. Company House wants certain conditions to be met by anyone seeking to voluntarily dissolve their business.

      for example, it will accept requests to liquidate a company if it has not traded or changed its name in the last three months; do not have current debt payment agreements; and is not being threatened with liquidation.

      There are also certain boxes that need to be checked to properly close a business. the company’s website has more details here.

      image source: getty images

Content Creator Zaid Butt joined Silsala-e-Azeemia in 2004 as student of spirituality. Mr. Zahid Butt is an IT professional, his expertise include “Web/Graphic Designer, GUI, Visualizer and Web Developer” PH: +92-3217244554

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