What Does it Mean When a Company is Dissolved?

In short:

• A dissolved company is simply a business that has closed and no longer exists.
• Dissolution is an option for both solvent and insolvent companies.
• A dissolved company is struck off from the Register of Companies.

 

During the process of a business closure, you’ll often be faced with a dizzying number of unfamiliar terms, acronyms and initialisms.

One which we’re commonly asked is what ‘dissolving’ a company actually means.

Put simply, a dissolved company is one that now ceases to exist. There are, however, some slight nuances to the term.

 

Dissolved companies are no longer registered

Once a company is dissolved, it no longer exists as a legal entity and cannot conduct business or enter into contracts with anyone.

A dissolved business can still be found listed on Companies House, but will be marked as dissolved, and as such, non-operational.

While dissolution can sometimes be referred to as a means of company closure in the same way that liquidation is, in its purest sense, it simply refers to the company ceasing to exist.

For example, a liquidation is a closure process that goes through several phases. The last phase in this process would be the dissolution of the business.

 

Why would a business be dissolved?

There are multiple reasons why a company may decide to dissolve, and while financial difficulties can often be a factor, there are also plenty of solvent businesses that choose dissolution too.

Dissolution is an option for business owners looking to retire, or those that simply wish to move on to other ventures. It’s a simple, clean, and relatively inexpensive means of closing down a business.

Of course, those that are struggling with cash flow or their company’s viability can also opt to dissolve, but they may find other closure procedures more suitable if they have significant debts.

 

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Thinking of dissolving your company?

Does your company qualify for Dissolution?

Find out with our free, quick, and no-obligation Limited Company Dissolution Test →

Or, call our advisers for some free, no-obligation advice on 0800 975 0380

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So how do you go about dissolving a limited company?

The way you dissolve the company depends on whether it can pay its bills or not.

 

Dissolving a solvent limited company

If a company can pay its bills, it is termed as being solvent.

In essence, you can either:

• Apply to simply get the company struck off the Register of Companies
• Start a Members’ Voluntary Liquidation (MVL)

If the asset value isn’t very high Striking off a company is usually the most cost-effective method of closing it. If the assets exceed £25,000 then an MVL would likely be the best route although there are tax implications which it may be best to discuss with an accountant.

 

Dissolving an insolvent limited company

However, if a company cannot pay its bills, it is termed as insolvent.

If a company finds itself insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

How you close your company entirely depends on your circumstances. You can:

• Place your company into Administration
• Arrange Creditors’ Voluntary Liquidation
• Explore the possibility of keeping your company open using a Company Voluntary Arrangement
• As an act of last resort, you can use Administrative Dissolution to close a company if there are no assets or funds to pay for other options

You should get professional advice from an insolvency specialist if you’re not sure which option is suitable for your company.

 

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Case Study

 

One of our clients, the owner of an independent public house, spoke to us recently about the possibility of liquidating their company.

The problem they had was that their business didn’t have the funds, nor the assets available to pay for the expensive liquidations they’d been quoted elsewhere.

They had accrued a small amount of debt while implementing much-needed repairs, but was confident at the time that they would be able to absorb the hit to their cash flow. Unfortunately for them, council roadworks blocking off easy access to their pub lasted longer than expected and severely impacted their sales.

Finding themselves now insolvent, they were looking for a means to close the company, but couldn’t afford the options they’d been given. Even our own competitively priced liquidation service was beyond their reach.

Luckily for them, their debts were of a sufficiently small amount that we were able to offer a straight dissolution instead. Dissolution in these cases is used as an absolute last resort for businesses that can’t pay their bills.

While there was still a small fee to pay, it was significantly less than that required for a liquidation. With little in the way of assets to liquidate though, a liquidation would have been difficult.

The dissolution went through and neatly wrapped up the closure of the pub, taking care of all legalities along the way and leaving the owner free to pursue other ventures.

Does your business qualify for a dissolution? Find out with our Limited Company Dissolution Test →

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What about compulsory liquidation?

Your company might be forced into compulsory liquidation if you don’t pay creditors, however you may be able to avoid liquidation by applying for a Company Voluntary Arrangement if any of these criteria are met:

• The company must be insolvent (can’t pay it’s debts as and when they fall due)
• Projected cash flow forecasts must show that the company will be able to pay the agreed amounts of repayment to creditors
• The directors must be confident that the business has a viable future and a good prospect of recovery

 

Can I let the company become dormant?

Contrary to popular belief, you don’t have to necessarily close your company if it’s no longer trading. You can let it become ‘dormant’ for tax as long as it is not:

• Carrying on any type of business activity
• Trading or open for business
• Receiving income of any kind

 

Thinking of dissolving your company?

There are several different methods of dissolving a company. We would always recommend that anyone considering a company closure should speak to a professional first.

Directors that get in touch with a business that only offers liquidations will unsurprisingly be told that a liquidation is best for their circumstance.

At Forbes Burton, we offer every type of company closure, rescue and sale service available. This means that you can be confident that you won’t be forced into a process that’s unsuitable for you just because that’s all the professional offers.

We’ll even talk you through how to close your business yourself if it’s possible that you can. Our clients come back to us because they appreciate our honesty and practical advice. Why not get in touch with us for a free, no-obligation consultation? Call us on 0800 975 0380 or advice@forbesburton.com