Stroke off or liquidation? A guide to closing a limited company

When a company can no longer keep their business going, they will find themselves either having it struck off, or liquidating it. While they both result in the closing of a limited company, it’s important to understand that striking off a company and dissolving it, is very different to winding it up through liquidation. So, what sets them apart and what benefits do either bring when closing a limited company?

Simply put, striking a company off the register is very informal, costs about £10 and involve little administration, plus, it can be done by a company director. On the other hand, when a company goes into liquidation, this has a lot more formal administration involved can cost several thousands of pounds and must be carried out by a licensed insolvency practitioner, like Bridge Newland.

Striking off

There are several conditions that come with a company wanting to get themselves struck off, otherwise known as dissolved. They must not have traded or sold any stock in the last three months, haven’t changed their name in the last three months, isn’t threatened with liquidation and has no agreements with creditors, for example Company Voluntary Arrangement (CVA).

If a limited company wants to be struck off the companies register, all, if not the majority of that company’s directors must file a DS01 form with Companies House. All assets of the company should be dealt with before applying for strike off, including the closing of bank accounts and the transferring of domain names. This is because, once a company has been dissolved, all of its remaining assets will be passed to the Crown.

As mentioned, it costs £10 to strike off your limited company. Once filed for, the company will get a letter from Companies House to let them know if they’ve filled out the form correctly. If you have, then your request to dissolve your limited company will be published as a notice in your local Gazette (official public records) and if nobody objects within two months, your limited company will be struck off the companies register.

At this point, your limited company will officially and legally no longer exist, so a second notice will be published in the Gazette. It’s that simple.

It’s worth noting that if a company owes money then it is likely that HMRC will block their application to be struck off until the debts are dealt with. If you do successfully dissolve your limited company while you have any outstanding debt, remember the company can be resurrected by its creditors in the future and the debts might then be held personally, against you, as a director.

Liquidation

If you choose to liquidate, otherwise known as ‘winding up’ your limited company, you will stop doing business and you will no longer employ people. Like with striking off, a company will no longer exist on the companies register, if they go into liquidation. However, when a limited company goes into liquidation, its assets are used to pay off any debts.

There are three types of liquidation: creditors’ voluntary liquidation, which is where the limited company cannot pay its debts and creditors are involved when you liquidate it; compulsory liquidation, which is when the company cannot pay its debts and you apply to the courts to liquidate it; or members’ voluntary liquidation, which is where your company can pay its debts but you want to close it. Your company may also be forced into liquidation if it cannot pay its debts.

Going down the liquidation route will undoubtedly be more time-consuming, however, a financial benefit of taking this route, is the formal process surrounding any debt. Although the actual liquidation process costs thousands in pounds, you pay for peace of mind. Simply put, if a limited company winds up, then any debt is legally dealt with, which means that you can move on with your life, knowing that all debts have been written off and cannot be held against you personally in the future.