Closing a limited company: every option explained
There are four main ways to close a limited company, and the right one depends on the answers to two questions: can the company pay all its debts, and does it have anything left to distribute to shareholders? A solvent company is closed by either voluntary strike off or by a members’ voluntary liquidation (MVL). An insolvent company is closed by a creditors’ voluntary liquidation (CVL) or, if matters are left to creditors, by compulsory liquidation through the court. There are also alternatives to closing at all, from dormancy to a formal rescue. This guide explains every option, what it involves and how to choose.
How do you close a limited company?
Start with the two questions above, because they do most of the work of choosing the route:
- Is the company solvent? Solvent means it can pay everything it owes, including the final tax bills, in full. If it can, you choose between strike off and an MVL. If it cannot, the closure has to deal fairly with creditors, which means an insolvent liquidation process.
- After paying all debts what is left in the company? A solvent company with modest reserves is usually closed by strike off. Where meaningful reserves have built up, an MVL usually puts more in shareholders’ pockets because of how the distribution is taxed.
The four routes are not interchangeable, and picking the wrong one has real consequences: a company struck off with liabilities can be restored to the register, and an insolvent company closed carelessly can create personal risk for its directors. The sections below take each route in turn.
Closing a solvent company
Voluntary strike off (dissolution)
Voluntary strike off is the simplest and cheapest way to close a company that has finished its useful life and holds modest reserves. The directors apply to Companies House to have the company struck off the register, after which it is dissolved and ceases to exist.
Before applying, the company must have stopped trading for at least a 3 month period and not changed its name within 3 months, settled its liabilities if possible, and dealt with its assets, because anything the company still owns at dissolution passes to the Crown as bona vacantia. Final accounts and returns go to HM Revenue and Customs (HMRC), staff are paid and the payroll scheme closed, and everyone with an interest in the company, including HMRC and any creditor, must be notified of the application and can object to it. Our company strike off page explains the mechanics.
In outline, a voluntary strike off runs like this: stop trading and settle liabilities, distribute any remaining funds to shareholders, file the final accounts and tax return, close the payroll and VAT registrations, apply to Companies House, send copies of the application to HMRC, creditors, employees and shareholders, and wait out the notice period during which anyone with an interest can object. If no one does, the company is struck off and dissolved.
Tax legislation allows you to pay a final dividend of up to £25,000 and have it treated as a capital distribution, similar to distributions in an MVL. An MVL supervised by an insolvency practitioner has no such limit.
Strike off is the right route for a genuinely dormant or wound-down solvent company. It is the wrong route, and a route with consequences, for a company with unpaid liabilities, which is covered below.
Solvent liquidation
An MVL is the formal closure of a solvent company by a licensed insolvency practitioner (IP) acting as liquidator. The directors make a statutory declaration of solvency, shareholders pass the winding-up resolution, and the liquidator settles any remaining liabilities within 12 months and distributes what is left to shareholders.
The principal commercial reason for using an MVL is generally tax savings. Funds distributed in an MVL are generally treated as capital rather than income in the shareholder’s hands, and capital treatment, with the reliefs that can attach to it, is often significantly better than drawing the same funds as dividends. The larger the reserves, the more this matters, which is why an MVL is the standard closure for companies holding substantial reserves, and why the choice between strike off and MVL is ultimately decided by a tax calculation to run with your accountant. For former substantial businesses it brings firm closure and any dividends paid to shareholders cannot be disturbed by any late claiming creditors, who have been notified of the MVL. Our complete guide to members’ voluntary liquidation covers the process, timescales and tax treatment in detail, and our solvent liquidations page sets out how we run them.
Closing an insolvent company
If the company cannot pay its debts in full, it can still be closed by voluntary dissolution in limited circumstances, by a creditors’ voluntary liquidation on the directors’ initiative, or by compulsory liquidation if matters are left to creditors. Each route is explained below.
Voluntary strike off (dissolution)
If your company has unpaid liabilities you can still apply to Companies House to strike it off the register but you have to notify all known creditors you are doing so. If you fail to notify a known creditor that is a criminal offence. Dissolution is not suitable for companies with assets sufficient to pay a dividend to creditors or employees and directors need to consider whether dissolution or liquidation is in the best interest of creditors. Also creditors can object to the strike off which can delay the process for months.
We take the view that no director should have to put their hand in their pocket to personally pay for a liquidation. If another IP firm suggests this to you by all means give us a call to see if there is another way.
Insolvency liquidation
A CVL is the director-led insolvency route. The board acknowledges the company cannot continue, shareholders resolve to wind it up, and an IP is appointed as liquidator to realise the assets, deal with creditors and close the company down in an orderly way. Employees can claim what they are owed, including redundancy pay, from the government’s National Insurance Fund, and the directors’ choice of an orderly closure is itself a point in their favour in the director’s conduct review every insolvent liquidation includes.
A CVL is usually the right answer when the business has assets and no realistic future: it brings creditor pressure to a stop, deals with everything properly, and lets the directors move on. Our creditors’ voluntary liquidation hub explains the process step by step, and our plain-English guide to what liquidation means covers the concepts.
Compulsory liquidation
Compulsory liquidation is what generally happens when closure is left to creditors. A creditor owed the statutory minimum or more, very commonly HMRC, petitions the court to wind the company up. If the court makes the order, the company is liquidated with the Official Receiver in control. The directors have chosen nothing and control nothing, the company bank account is frozen once the petition is advertised, and the directors’ conduct review takes place against the backdrop of a company that had to be wound up by the court.
If a winding up petition is threatened or has been presented, options still exist, but they narrow by the week. Our compulsory liquidation hub explains petitions, orders and what can still be done.
What if the company cannot afford to liquidate?
A company with no assets and no funds still has routes to closure, and directors are not expected to be trapped with a dead company indefinitely. The options are to do nothing and wait for Companies House to strike it off, make an application for a voluntary strike off or allow a creditor to petition, and these are covered in our answer on what happens if you cannot afford to liquidate your company. If you do nothing Companies House can fine directors for failing to file documents so it is better to be proactive.
Can I just walk away from a limited company?
No, and the two ways people try are both traps. Simply abandoning the company, not filing, not responding, leads to Companies House striking it off eventually, but the directors can be fined.
Applying to strike off a company that has debts is an option if all creditors are properly notified but a company with an outstanding Bounce Back Loan (BBL) is a particular red flag. Government guidance is explicit that dissolution is not a way out of the BBL, dissolutions are routinely objected to, and directors of dissolved companies can now be investigated and disqualified.
If the company has assets or employees and owes money it cannot pay, the clean exit is a CVL that deals with creditors properly. It costs more than doing nothing in the short term but is the proper way to act.
Do I need to tell HMRC when I close my company?
Yes, whichever route you take. Closure includes final statutory accounts and a final corporation tax return, closing the PAYE scheme if you have employees, deregistering for VAT, and paying, or dealing formally with, the final tax bills.
In a strike off, HMRC is also notified of the application itself and is the most common objector where tax is outstanding. If tax debt is the reason the company cannot close cleanly, our guide for companies in debt to HMRC explains the options, including agreeing time to pay.
What happens to employees when you close a company?
If the company is solvent, employees are dealt with like any other obligation: proper notice or payment in lieu, redundancy where it is due, and final pay settled before the company closes.
If the company is insolvent, employees do not simply lose out: in a liquidation they can claim unpaid wages, holiday pay, notice pay and statutory redundancy from the government’s National Insurance Fund, and helping employees make those claims is part of the liquidator’s job.
Directors who were genuinely employees of the company can have claims of their own. Our looking after employees page explains how staff are treated in each process, and it is worth reading before you announce anything to your team.
Can I start a new company after closing one?
Usually, yes. Closing a company, even through an insolvent liquidation, does not by itself stop you being a director again, and most directors of failed companies go on to run new ones. Two cautions apply.
First, every insolvent liquidation includes a review of the directors’ conduct, and it is specific misconduct, not the failure itself, that leads to disqualification.
Second, there are statutory restrictions on reusing the name, or a very similar name, of a company that has gone into insolvent liquidation: doing it without following the rules can make you personally liable for the new company’s debts. If you plan to carry on a similar business, take advice on the name rules before you register anything; our answer on phoenix companies explains how a legitimate phoenix works and where the traps are.
Common mistakes when closing a company
- Emptying the company bank account before dissolution planning is done, which can turn distributions into problems later.
- Forgetting bona vacantia: anything still owned at dissolution, including the bank balance, passes to the Crown.
- Leaving HMRC registrations open, so penalties accrue against a company you thought was finished.
- Choosing the route by price alone rather than by the company’s actual position.
- Waiting so long that creditors choose the route for you.
Could you keep the company instead? Dormancy and rescue
Closing is not always the right answer, and two alternatives are worth ruling out before you commit.
A company you might use again can be made dormant rather than closed: it stops trading, files dormant accounts, and sits on the register at minimal cost, keeping the name and history available. This suits a genuine pause, not a company with debts.
A company in difficulty but with a viable business inside it may not need closing at all. A company voluntary arrangement can restructure what it owes, administration can protect it while a rescue or sale is arranged, and practical business rescue support can stabilise cash flow before any formal process is needed. If the business still has customers, demand for its services and a reason to exist, take advice on rescue before deciding to close; this guide is about closure, but closure is a choice, not a default.
How much does it cost to close a limited company?
Strike off costs almost nothing beyond the Companies House fee and any professional help with the final accounts. Liquidations, solvent or insolvent, involve the IP’s fees, which reflect the work in the case, such as realising assets, dealing with creditors and the complexity of what has gone before. Our guide to the cost of liquidating a company breaks down what drives the numbers and who pays.
How long does it take to close a limited company?
Strike off occurs three months after the strike off application, assuming no objections. An MVL can distribute the bulk of the funds relatively quickly, with formal closure following once final tax returns are filed and the HMRC position fully reconciled. A CVL brings creditor pressure to a stop on liquidation, usually within weeks of the decision to proceed, though the liquidation process itself takes as long as the assets and claims require. The initial stages of a compulsory liquidation run on the court’s timetable, which is one more reason not to let matters reach it.
Three closures, three routes: worked examples
To make the choice concrete, here is how the logic runs for three typical companies:
- A contractor’s company after its owner takes a permanent role: solvent, small retained funds, no staff. Final accounts, distribute the funds, deregister for VAT and PAYE and finalise the company’s corporation tax affairs, strike off. Total cost is minimal and the whole thing is done in a few months.
- A consultancy that has built up significant reserves over a decade: solvent, six figures retained. An MVL almost certainly beats strike off after tax, and the fee is weighed against the tax saved. The accountant runs the numbers; the liquidator runs the process.
- A trading business that has lost its biggest customer and cannot pay HMRC: insolvent, staff, creditor pressure building. First question: is any of it viable? If yes, consider rescue options. If not, a CVL on the directors’ timetable, before a petition takes the timetable away.
How to choose the right way to close your company
- Solvent, little left in it: voluntary strike off, after the final filings and distributions are done.
- Solvent, meaningful reserves: compare an MVL against strike off with your accountant; the tax treatment usually decides it.
- Insolvent with assets and employees, no future: a CVL, started by you, on your timetable.
- Insolvent, creditors circling or a petition threatened: take urgent advice, this week, while a CVL or a defence is still available.
- Viable business, temporary trouble: rescue options before any closure decision.
The Director’s Guide to Company Insolvency covers the duties that apply while you decide, whichever way you are leaning.
If you are weighing up how to close your company, or whether you have to close it at all, the first conversation with us is free and confidential. Book free initial advice or call 0800 331 7417.