How to close a limited company (strike off vs liquidation)

Understanding Your Options: Strike Off vs. Liquidation

When you decide to close your limited company, there are two primary legal routes: applying for a voluntary strike-off or entering liquidation. The choice largely depends on your company's financial health – specifically, whether it can pay all its debts.

Voluntary Strike-Off

A voluntary strike-off, also known as dissolution, is generally the simplest and cheapest way to close a solvent company. This method is suitable if your company has ceased trading, has no significant debts, and meets specific conditions.

When is Strike-Off Suitable?

You can apply for a strike-off if your company:

• Has not traded or sold off any stock in the last three months.
• Has not changed its name in the last three months.
• Is not threatened with liquidation.
• Has no agreements with creditors, such as a Company Voluntary Arrangement (CVA).
• Can pay all its debts, or has already settled them.

The Strike-Off Process

1. Prepare the company: Before applying, you must legally close down your company. This involves:

• Ceasing trade: Stop all business activities.
• Dealing with assets: Distribute any business assets among shareholders. Any assets remaining after the company is struck off will pass to the Crown.
• Settling debts: Pay all outstanding debts, including those to suppliers, employees, and HMRC.
• Closing bank accounts: Close all company bank accounts. You will lose access to these once the company is struck off.
• Employee matters: If you have employees, follow redundancy rules and pay final wages.

1. Inform interested parties: You must send a copy of the strike-off application (Form DS01) within seven days to anyone who could be affected. This includes members (shareholders), creditors, employees, pension fund managers, and any directors who did not sign the form.
2. Submit Form DS01: Complete and send Form DS01 to Companies House. The form must be signed by a majority of the company's directors.

• The online fee for a voluntary strike-off is £13 from 1 February 2026 (figures for illustration — check current rates). A paper application costs £18.

1. Companies House action: Companies House will register your application and publish a notice in The Gazette, announcing the proposed strike-off.
2. Objection period: There is a two-month period during which interested parties can object to the strike-off.
3. Dissolution: If no objections are received, Companies House will publish a second notice in The Gazette, and the company will be struck off the register, ceasing to legally exist.

Members' Voluntary Liquidation (MVL)

A Members' Voluntary Liquidation (MVL) is a formal process for closing a solvent company that can pay all its debts, but the shareholders wish to wind it up. This is often chosen over strike-off for companies with significant assets, as it can offer tax advantages for shareholders.

When is MVL Suitable?

MVL is suitable if your company:

• Is solvent (its assets are worth more than its debts).
• Can pay off all its debts, with interest, within 12 months.
• Has significant assets or a complex structure, making a formal process more appropriate.
• Shareholders want to extract capital in a tax-efficient manner, potentially benefiting from Business Asset Disposal Relief (BADR).

The MVL Process

1. Appoint an Insolvency Practitioner (IP): You must appoint a licensed IP to act as the liquidator.
2. Directors' Declaration of Solvency: A majority of the directors must make a formal 'Declaration of Solvency', stating that the company can pay its debts within 12 months. This declaration must be signed in front of a solicitor or notary public.
3. Shareholder Resolution: A general meeting of shareholders must be called within five weeks of the Declaration of Solvency. At this meeting, shareholders must pass a special resolution (supported by at least 75% of votes) to voluntarily wind up the company and appoint the liquidator.
4. Gazette Notice: The resolution for voluntary winding up must be advertised in The Gazette within 14 days.
5. Liquidator's role: The liquidator takes control of the company, realises its assets, settles any creditor claims, and distributes any surplus funds to the shareholders.
6. Final meetings and dissolution: The liquidator will hold final meetings with members and file the necessary documents with Companies House. The company is then dissolved.

Creditors' Voluntary Liquidation (CVL)

If your company cannot pay its debts (it is 'insolvent'), a Creditors' Voluntary Liquidation (CVL) is the appropriate route. In this scenario, the interests of the creditors legally take precedence over those of the directors or shareholders.

Directors usually initiate a CVL by appointing an IP. The IP's primary role is to realise the company's assets and distribute the proceeds fairly among creditors.

Tax Considerations

Regardless of the closure method, you have important tax obligations to fulfil.

• Final Accounts and Company Tax Return: You must prepare final statutory accounts and a Company Tax Return (CT600) for HMRC, stating that these are the final trading accounts.
• Corporation Tax: Pay any outstanding Corporation Tax. If your company made a loss in its final year, you might be able to claim 'terminal loss relief' against profits from previous years.
• VAT: Cancel your VAT registration with HMRC.
• PAYE: Inform HMRC if your company has stopped employing people and settle any outstanding Pay As You Earn (PAYE) and National Insurance Contributions (NICs).
• Director's Loan Accounts (DLA): Ensure any outstanding Director's Loan Accounts are settled before closure. An overdrawn DLA can have tax implications if not repaid.
• Business Asset Disposal Relief (BADR): For MVLs, distributions to shareholders are typically treated as capital, which may qualify for Business Asset Disposal Relief (formerly Entrepreneurs' Relief). This can reduce the Capital Gains Tax (CGT) rate on qualifying gains.
• From 6 April 2026, the BADR rate is 18% on qualifying gains, subject to a lifetime limit of £1 million (figures for illustration — check current rates).
• To qualify, you generally need to have been a director or employee, and owned at least 5% of the company's ordinary share capital and voting rights for at least two years up to the date of disposal or cessation of trade.

Common mistakes

• Not settling all debts: Failing to pay all creditors before a strike-off can lead to objections and the company being restored to the register.
• Not informing interested parties: Neglecting to notify all required parties of a strike-off application can result in fines or prosecution.
• Ignoring Director's Loan Accounts (DLA): Unsettled DLAs can create unexpected tax liabilities for directors.
• Choosing the wrong method: Attempting a strike-off for an insolvent company when liquidation is required can lead to serious legal consequences for directors.
• Not distributing assets: Any assets remaining in the company's name after a strike-off will pass to the Crown.