What is Company Dissolution?
As per law, word “dissolution” has multiple meanings, however when it comes to dissolution of a company, it normally refers to the last stage of the liquidation and is the process by which either an entire company or a part of it is brought to an end while its assets and properties can be redistributed. However, dissolution could either be voluntary or a compelled one and in the former case, it is the joint decision of the shareholders , directors or incorporators to dissolve a company, however, in the later case, it is usually a legal action taken against the company. In case of company dissolution, name of the particular company is removed from the registers of the Companies House and once its name is struck off the registers, company, as an entity, no longer exists and this very fact can be checked by checking against the company name at the Companies House Website.
A business can be closed by simply shutting down its operations whereas when it is dissolved, it closes legally and should be done in good faith with the government wherein it officially ends its director’s or stakeholder’s responsibility of handling taxes, debts and other commitments.
Possible Reasons Behind Company Dissolution:
There could be plethora of reasons behind dissolution of a company and it varies from nature, type and size of the company and it has normally not much to do with its past. Company which is getting dissolved may have a glorious past or it may have never traded altogether. However, there are certain common reasons for which a company gets dissolved, such as:
- Low Cash Flow
- Negligent Accounting Practices
- Succession-Planning Failure
- Partnership Disagreements
- Noncompliance with Mandates
- Product Liability
Apart from the above obvious reasons, there could be other reasons as well behind a company’s dissolution, such as the company was set up to fulfill an idea or motive, or to sell a product which is no longer in demand or its production is no longer viable or profitable for the company. Chances could be that the stakeholders or the directors want to retire and are not able to find eligible or competent person for the take over the company from them. There are times when a company is registered with the Companies House but stays dormant throughout i.e. it is not actively involved in any kind of trading activity. Being dormant means that the company remains on the Register at the Companies House, is unused, but can be resurrected at some future point in case the directors decide to trade under the company name again. However, the company has to be dormant for a minimum of three months before it can start its closure procedures. So, in this case, directors might take a call to strike off the company name from the registers of the Companies House.
However, irrespective of the reason behind the dissolution or striking off a company from the registers of the Companies House, there are certain processes or steps which need to be followed along with proper documentation.
How to Dissolve or Strike-Off A Company?
The main factor to be considered before dissolving a company is to check if it is solvent or not. Because in case it is one, different route need to be taken from dissolving an insolvent one.
To Strike-Off / Dissolving a Solvent Company:-
One can dissolve or strike off a company from the registers of the Companies House only if:
- It hasn’t traded in the last three months.
- It hasn’t sold any property or rights owned by the business. For example: a boutique cannot or rather could not sell their remaining clothes themselves in the last 3 months, however they could sell the mannequins, tills, its delivery vehicle etc.
- It hasn’t changed its name in the last three months.
- It is not bankrupt i.e. it does not has any pending debts.
- It has not signed Company Voluntary Arrangement (CVA) with its creditors.
In case, the above criteria are met, Form DS01 needs to be filled and submitted for the further course of action regarding dissolution of the company. However, dissolution of a company is not something which could be done overnight and it needs a proper planning and its execution before it is officially dissolved and struck off from the registers of the Companies House.
Before you officially dissolve your company, you need to follow certain rules and steps to ensure that the company dissolution process in legally valid, such as:
Steps to Take Before Striking-Off A Company:-
Before you start with strike-off procedure, you need to look into and settle down lot of things, such as:
- Announcing your plans to Her Majesty’s Revenue & Customs (HMRC) and other interested parties.
- In case you are making your staff redundant, you need to follow detailed rules to ensure they are treated fairly.
- Pay final salaries of the employees.
- File your final accounts and a company tax return and submit the same with the HMRC. Along with this, you would need to inform HMRC that these accounts are final ones and the company in picture will be dissolved shortly.
- Pay your pending tax liabilities with HMRC such as Corporation Tax, PAYE, NI etc.
- Request HMRC to close down the company’s payroll scheme.
- Remove the company’s registration from the VAT .
- Distribute the company’s assets between its shareholders and if there is any asset which remains undistributed, goes to the Crown automatically.
- Close company bank accounts.
- Transfer website domain names.
What is Form DSO1?
Form DS01 needs to be filled and submitted with the Companies House in case of dissolution of a solvent company. It is simple to fill in and you need to have following information handy while filling one:
- Name of the company.
- Number of the company.
- Signature(s) of the stakeholders or directors who have authorized the dissolution of the company. It should have majority of at least 2 directors.
A filled form, along with a cheque of £10, payable at Companies House need to be send on the Companies House address based on the location of your company, such as:
- Companies House, Crown Way, Cardiff CF14 3UZ – For English and Welsh Companies.
- Companies House 4th Floor Edinburgh Quay 2, 139 Fountainbridge, Edinburgh EH3 9FF – For Scottish Companies.
- Companies House 2nd Floor The Linenhall, 32-38 Linenhall Street, Belfast BT2 8BG- For Northern Ireland Companies.
Once you have filled the form and sent it to the Companies House, you need to send its copy to the interested partied in a time span of 7 days. As per the law, one copy of DS01 should be sent to the following:
- A member, usually a shareholder.
- An employee.
- A creditor of the company.
- To the director who hasn’t signed the DS01 form.
- The manager or the trustee of any pension fund established for the employees.
Once Companies House receives filled DS01 form, it will go through it and if it’s acceptable, it will send the acknowledgment by post followed by a notice in the London, Edinburgh or Belfast Gazette, depending on the location of your company, giving at least three months of notice of the intent to strike off the company. The idea behind this is to invite any interested parties to make an objection against the dissolution of the company. In case of any objection, Companies House considers the same against its authentication and appropriate action will be taken, if found valid. And in case of no objection, the company will be struck off the register once the time period mentioned in the notice is over. However, once the company is struck off, another notice will be published in the concerned Gazette declaring the same i.e. the particular company does not exist anymore and has been legally dissolved.
Objections against Strike-Off or Dissolution of a Company:
Once notice is published in the concerned Gazette, anyone, with a valid point against the same, can raise an objection against the dissolution of the company by writing the letter to the Registrar of the Companies House, along with supporting evidences such as copies of invoices which can prove that the particular company is still trading. Companies House takes appropriate action against the stakeholders or directors of the company in case the objections raised are found valid. Valid reasons for objection need to be validated. Some of the valid reasons are:
- The company is still trading and is not dormant for a time span of at least 3 months.
- Declaration(s) in DS01 is false.
- Interested parties are not informed regarding the dissolution of the company.
- The company has not complied with the conditions of the application to strike off. For example, if the company has changed its name in a time span of less than 3 months.
- If it is facing any kind of legal action.
To Strike-Off / Dissolving an Insolvent Company:-
Voluntary dissolution or strike-off a company is possible only if:
- There are no outstanding liabilities against the company and all of its outstanding creditors have been paid off.
- There are no existing agreements with the creditors such as Company Voluntary Agreement.
- There cannot be any existing or pending petition to wind up the company, insolvency proceedings or any other type of order under the Insolvency Act.
However, in case, your company falls under either one or all of the above conditions, Form DS01 will not be valid.