What is the process to strike off a limited company?
If you no longer need a limited company, Company Strike Off, also known as Dissolution, is a simple and inexpensive way to close it down. You can apply to Companies House to strike the business off the official register of companies. Once it has been struck off, it will cease to exist as a legal entity. However, Company Strike Off is not appropriate for every business. If your company has debts or significant retained profits, other closure methods will be more suitable.
What does striking off a company mean?
There are several reasons why you might want to close a limited company. You could be ready to retire or want to move on to a new challenge, or the company may never have traded and now you’re ready to close it down. Whatever the reason, Company Strike Off allows you to bring an end to the company by following a simple online process and paying a fee of just £8. You can also complete the paper form DS01 if you cannot apply online.
You can strike off or dissolve your limited company if it:
- Has not traded or carried out any other activities in the last three months
- Has not changed its name in the last three months
- Is solvent and can repay all its debts
- Has no ongoing legal agreements with creditors and no outstanding legal action against it
If your company meets the criteria, you can apply to Companies House to start the process. As long as all the information you provide is correct, a notice will be placed in the Edinburgh Gazette (for companies incorporated in Scotland) to inform interested parties of your intention to dissolve the company. If there are no objections within two months, a second Gazette notice will be published and the company will be struck off.
Why might someone object to Company Strike Off?
The notice strike off is published in the Gazette to inform interested parties and give them the chance to object. The most common objectors are creditors like trade suppliers and HMRC. Other common third-party objections include:
- Information on your strike off application is incorrect
- The company has not complied with the strike off conditions
- Not all third parties, such as shareholders, employees and creditors, have been informed
- Action is ongoing to recover money owed by the company
If an objection is made and upheld by the registrar, the strike off will be suspended until you have resolved the issue.
Can I strike off a company with debts?
You cannot use strike off to try and escape your debts. One of the main requirements for Company Strike Off is that your business is solvent and can repay all its creditors. If you try to dissolve a limited company with debts, your creditors will usually object to the strike off so they can take action to collect the money they are owed.
If there are no objections and you dissolve a company with debts, your creditors can still take action against you. They can apply to the court to restore the company to the register and claim the money they are owed. That will leave you in a very precarious position, as trying to strike off an insolvent company can lead to severe penalties, including fines and personal liability for the business’s debts.
If your company has debts it cannot repay, you will need to close the company through a formal insolvency process such as a Creditors’ Voluntary Liquidation (CVL).
Is strike off the most cost-effective way to close a limited company?
Although Company Strike Off is inexpensive, it may not be the most cost-effective way to close your company. If your company is asset-rich or has substantial cash reserves, a Members’ Voluntary Liquidation (MVL) may be more cost-effective.
The main advantage of an MVL is that the profits you extract from the company are subject to capital gains tax rather than income tax or dividends tax. If you’re also eligible for Business Asset Disposal Relief, you’ll pay just 10% tax on qualifying assets. Although £25,000 is the legal threshold for a Members’ Voluntary Liquidation, the liquidator’s fee means that you’ll typically need around £35,000 in retained profits for an MVL to be more cost-effective than strike off.
What is compulsory strike off?
As well as voluntary strike off - when a company director chooses to dissolve their company - Companies House can also forcibly dissolve a limited company. Known as compulsory strike off, it most commonly occurs when companies do not comply with Companies House regulations. That could be by repeatedly failing to file the company’s annual accounts or failing to notify Companies House of a change in address. Companies House must have grounds to believe the company has ceased trading before initiating the process.
The consequences of compulsory strike off can be serious. Contracts with suppliers and customers will be at risk and the company will find it very difficult to secure funding to resolve the situation as, legally speaking, the company no longer exists. Any assets you have not transferred away from the company before it is struck off will also become the property of the crown.
Need advice?
Are you unsure whether Company Strike Off is the right way to close your limited company or perhaps you have debts you’re struggling to repay? Contact our business debt advisers to arrange a free, no-obligation consultation. We’ll discuss the company closure methods available to you and guide you on the most suitable approach to take.
