Closing a limited company may sound easy and quick, but definitely, it’s not. There are several procedures related to this decision.
Maybe you are retiring or turning to another direction while closing a company and your first step must be to tie up all the legal loose ends. It can be settling any bill or collection of money or paying all the debts- everything must be cleared before you close the company. And an important thing to remember is, you must have enough money in hand for the costs that may occur from now to the closing point.
But before everything, you must know that closing an insolvent company and a solvent company is quite different.
How to close a solvent company? There are a couple of options that you can consider while closing a company that is solvent.
First thing first, the company’s director needs to fill up the striking off form or DSOI. In the form, you have put information like Company name, Company’s directors, and other necessary details. And you may also have to enclose a cheque.
After a while of submitting the form, the authorities will publish a notice in the public record. If no objects are raised, then you should concentrate on profit distribution. The earned profit from the closure must be equitably distributed among all the shareholders. But the process can be delayed for the COVID 19 pandemic,
Member Voluntary Liquidation
MVL is a tax-efficient way to unlock cash from your business so that the profit can be equitably distributed among shareholders as capital but not as dividends. One significant advantage of the MVL process is you can extract all the assets from your company. But you will need a certain amount of money even if you choose this option.
Closing an Insolvent company
If the authorities make sure that your company is Insolvent and cannot pay all the debts, you must step forward with Creditors’ Voluntary Liquidation or CVL. In this case, all of your company assets will be given to the parties from who you owe money.
But to proceed, at least 75% of your company’s shareholders need to agree with this decision. Further steps of this process differ from business to business. The size of the company and the complexion of the situation decide the additional steps of the process.
Making your company Dormant
If you still think that rather than putting a full stop on the company, you can precisely put it on hold, and in the future, you might trade through the limited company then make the company dormant. This way, you will still have a few files of tax returns of your company as nil traders. That means you reported them a file full of zeros to make them believe that you are not working.
Until then, you can work outside of your company as a sole trader and come back to work through the company when you have such financial conditions.
Difference between Insolvency and Bankruptcy
An insolvent person may not be Bankrupt. To understand this statement, you have to understand the difference between insolvency and bankruptcy. Insolvency is the financial state when a company or person becomes unable to pay its debts. On the other hand, bankruptcy is an official order which tells you how you have to pay all the debts or even if you have to sell your assets to make payment.
Suppose you realize that your company has become insolvent or likely to become insolvent and searching for a process that can help you in the situation. In that case, insolvency support can help you. An Insolvency practitioner will analyze your business thoroughly and determine how complicated the situation is. Their main motive is to save your company. And to do so, they will help you and tell you all the possible steps you can take.
When should you seek Insolvency support?
When your financial resources are out of your control, or you are assuming that you are going to be distressed financially. However, sitting insolvency support means you are giving your company the last chance to survive. From negotiating with Creditors to adapting CVA, the Insolvency practitioner will do everything possible to save your company.
Duties of an Insolvency practitioner
• Giving advice that can help you to avoid insolvency
• Negotiating with all the creditors or other parties
• Assets realization in the best return possible to creditors only after marketing to a vast range of potential buyers.
• Statutory duties
• Submitting regular reports to the creditors on the progress of company insolvency
• Finding all the roots of insolvency and preventing them and file reports.
An insolvency practitioner can hold different duties depending on the company’s circumstances. You can unhesitatingly consult for insolvency support when you think your company is worth saving.