How to close your solvent company

As a company closure specialist specialising in the contractors and one-person limited companies, you can imagine we get asked rather a lot, but seven questions come up again and again

Here, exclusively for ContractorUK, I want to tackle those seven, with a view to demystifying what they tend to revolve around – how to close your solvent company, writes Richard Hunt of SFP Group.

1. Am I able to close my solvent company?

The simple answer is to this first and often-asked question – ‘Am able to close a company?’ is ‘Yes.’

If your contractor limited contractor company is solvent you may still be considering closing it down for many reasons.

Retiring, going back into employment or moving abroad are all popular reasons for people wanting to close down their company and release the cash tied up in it.

2. Is my company solvent?

Your limited contractor company is considered ‘solvent’ if it has more assets than liabilities, and if your company is able to pay all its financial obligations as they become due. As it sounds like, this is no bad thing!

3. What is the difference between a solvent and insolvent liquidation?

A solvent liquidation is a choice made by you (and any other company directors) to close down your financially-healthy limited company for personal reasons.

It is tax-efficient and allows you to release any money that is tied up in the company.

An insolvent liquidation, by contrast, is carried out when a company can no longer meet its financial obligations and there is no chance of turning the situation around.

Both liquidations involve the realisation of assets and the distribution of the cash.

In the case of solvent liquidation, the cash (after settling the costs and all creditors) will be distributed between the shareholders.

In the case of insolvent liquidation, the cash (after costs) will be distributed among creditors in a specific order.

4. What is a solvent liquidation?

A popular route for closing down your solvent company is through a Members’ Voluntary Liquidation (MVL).

If your company has been trading for over 24 months and has at least £25,000 in net assets after settling any liabilities, then an MVL is a professional and cost-effective liquidation solution.

To carry out an MVL you will need to instruct an Insolvency Practitioner (IP), who the shareholders then appoint as the liquidator.

Your IP will formally oversee the process for you. 

5. Why should I liquidate my solvent company?

By liquidating your solvent contractor company, you not only release the cash tied up for new life projects, but you can also benefit from substantial tax allowances.

By liquidating your solvent company through an MVL, you could qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which can mean only paying 10% tax on your gains from the company assets.

6. How do I close my solvent contractor company with an MVL?

If you and the majority of any other directors agree to close down a limited company, then you will need to contact an IP to discuss your situation.

But don’t worry, the IP will help you identify if an MVL is the right course of action for company closure.

If the IP is satisfied an MVL is right, then you can instruct them to start the process.

They will help you to get the shareholders to pass resolutions to start the liquidation. Assets will be realised and funds will be used to pay creditors and the costs of the liquidation. Any remaining funds will be evenly distributed between the shareholders.

Alongside this, other administrative tasks such as notifying Companies House of the closure will be handled by the IP.

7. Best Insolvency Practitioner? Not to blow our own trumpet but…

If you are ready to talk about closing your solvent contractor company, then contact SFP. We have over 25 years of liquidations experience and can provide you with simple, understandable, no-nonsense liquidation advice. For your piece of mind, we have in-house, award-winning liquidation experts on hand who can offer tailored advice and bespoke guidance on your next steps for your limited company.