Last week, we outlined the two main methods of closing down a solvent limited company: voluntary dissolution and members’ voluntary liquidation (MVL). As both methods have the same outcome, it might not seem overly important which you choose.
However, both have their advantages and drawbacks. When it comes to closing your limited company, the method you should choose will depend on your company’s individual situation, with the net value of your remaining assets playing the key role.
The main advantage with a voluntary dissolution is that the process itself is simple and cost-effective, with the DS01 form needed to strike the business of the Companies House register costing just £8.
However, the guidelines that a business must adhere to before voluntary dissolution – such as seeking to ensure it does not trade for three months prior to being struck off – are strict. Finally, before being struck off, the company will need to disperse its assets, as any that remain will go to the crown once the company is dissolved.
By comparison, an MVL – in which the business takes on a licensed insolvency practitioner – represents a far more significant up-front investment. However, this can be worthwhile, particularly for businesses with assets yet to be dispersed as, through an MVL, assets you sell on will be subject to Capital Gains Tax, rather than income tax, making the process far more tax efficient.
Overall, the value of the assets held by a limited company when the decision is made to close it will generally dictate which method is advisable. If the company’s remaining asset value is low (i.e. under £25,000), then a voluntary dissolution can be a quick and cheap way to close the business.
However, if the net value of remaining assets is high, then investing in an MVL could prove to be extremely worthwhile due to the tax efficiency the process offers.
Author: Steven English