How to Close a Dormant Company

Closing a dormant company is much like closing an active company: it has to be officially dissolved and then struck off the register at Companies House. If the dormant company has no debts, it’s usually easiest to do this via a voluntary strike off.

Some directors fall into the trap of assuming that they can forget about their business once it’s declared dormant, but they can still incur annual filing penalties should administrative duties not be upheld.

What’s the difference between a dormant and closed company?

A closed company no longer exists while a dormant company remains registered on Companies House. Even though a dormant company doesn’t do any trading, it still needs some (minimal) paperwork filing on an annual basis.

Directors change a company’s status to dormant when they think they may have use for the company at a later date. Often this is to retain a business name, as once a company is closed completely and ceases to exist as a legal entity, others can use the name for themselves.

Assets are held within a dormant company, so they can also be used to protect intellectual property such as patents. In a closed company, any remaining assets are taken by the Crown.

Restarting a dormant company is also very simple, with its status able to be reversed at any time. Reviving a closed company, on the other hand, is extremely complex and costly. While it is technically possible in some cases, it’s very rarely done due to the difficulties it entails.

How to close a dormant company step by step

Make sure that the company is ready to be closed

Businesses aren’t eligible for being struck off the register if they have been active recently. To ensure that your company qualifies for dissolution, it should adhere to the following:

• It cannot have traded within the three months prior.
• Not sold off stock within the three months prior.
• Not changed name within the three months prior.
• Has no debt
• Isn’t facing legal action
• Isn’t facing insolvency or threat of liquidation

Settle final accounts

Ensure that all administrative obligations have been fulfilled and that there are no other documents to be filed.

HMRC need to be notified of your plans to close. Any outstanding PAYE schemes should be shut down, Corporation Tax needs paying up, and you’ll also need to deregister for VAT.

Close bank accounts

Protect yourself from any potential issues in the future by closing all the corporate bank accounts used by the business. Leaving these open provides a means for criminals to steal either your identity or that of the defunct company.

Take care of any assets

Should the company be dissolved while still holding money or assets, these will automatically become property of the Crown. This is known as bona vacantia (vacant goods).

Make provisions to distribute any assets in a proper legal manner by choosing the right closure method. A members’ voluntary liquidation may be the best option for businesses with significant assets to

Notify interested parties

Shareholders will obviously need to be made aware of any plans to close a dormant company. They may have ideas for the business that they’ve not had chance to share with you yet. Ideally, this would be done informally as your first course of action.

Formally however, Shareholders and other directors are notified by sending a copy of the strike-off application to them within seven days of submitting.

File DS01 form

This can be done online via the gov.uk website and costs £13. Alternatively, you can submit the form via post, but this costs slightly more at £18 and will take a little longer

Postal submissions can only be paid for by cheque or postal order

Dissolution

The application to close is published in The Gazette, which then gives anybody two months to object to it. If an objection is filed, the closure can be suspended until this is resolved.

Assuming that there have been no objections filed against you closing your business, the company will then be struck off the register at Companies House. This usually takes around two or three months, but once this happens the company ceases to exist.

Choosing the right method of closure

For many, the steps listed above should be sufficient to close their businesses. This is known as a voluntary strike off or dissolution. It’s a relatively simple means of closure and can even be performed by yourself without the need of a third party. Of course, should you prefer help to conduct a voluntary strike off, Forbes Burton can assist.

Should your business still hold significant assets or cash, however, a members’ voluntary liquidation may be a better alternative. This would redistribute the assets among shareholders, directors and any creditors in a legally responsible manner.

Liquidations are far more expensive than a standard dissolution fee though, and although MVLs tend to cost a little less than other types of liquidation owing to the absence of creditors, you can still expect to pay £3,000 at least. As such, this would only really be recommended if the company’s assets are substantial.

Post-closure responsibilities

Even after the company has closed and ceases to be a legal entity in any form, you still have some responsibilities to adhere to.

There’s a legal requirement to keep hold of any records relating to the closed business for at least six years. This ensures that you’re covered should HMRC choose to conduct a belated tax or compliance check

If you no longer have plans for your dormant company, it’s best to close it.

Unless you’re planning to resurrect your business in the future or use its name, it’s generally best to close it off altogether.

This helps you to avoid a whole host of potential issues. Even when a company is dormant, it still requires regular compliance filing. For many, this is enough reason to close it anyway but throw in the threat of late filing fees and even identity theft, and it becomes clear that dormancy isn’t worth the fuss if there’s no plan for the business moving forward.

However you decide to close your dormant company, Forbes Burton can help. Call us on 0800 060 8446 or email advice@forbesburton.com