What if a Company Continues Business Under Involuntary Dissolution
Company dissolution is a formal process whereby a company is closed down and removed from the official register at Companies House. This process is also referred to as 'striking off' a company. When a company has been officially dissolved, it ceases to exist as a separate legal entity and can no longer trade.
In this post, we look at company dissolution in detail, including the reasons why a company would be dissolved, the difference between voluntary and involuntary strike off, eligibility criteria, and how to make a company dissolution application.
Why dissolve a limited company?
Company dissolution is often a voluntary process initiated by the directors.
However, as the official registrar of companies in the UK, Companies House has the power to forcibly dissolve companies. This is known as involuntary dissolution, and usually happens when a company has failed to maintain certain statutory obligations, such as filing confirmation statements, annual accounts, and tax returns.
Common reasons for voluntary dissolution
There are many reasons why people choose to dissolve a company voluntarily, including:
- The company never began trading, so it is no longer required
- The business enjoyed early success, but is no longer viable
- To change the legal structure of the businesses (e.g. from limited company to sole trader or partnership)
- The owner no longer wants to run the company, and wishes to move to employment or start a new business
- The owner becomes ill, passes away, or wants to retire, and no one else wishes to take over the company
- To re-register a company in a different UK jurisdiction – it is not possible to change a company's jurisdiction of incorporation (e.g. from Scotland to England & Wales), so dissolving the company and registering a new one in the preferred jurisdiction is the only option in such instances
- The company was incorporated for the sole purpose of protecting a company name, but it is no longer needed
Another common reason for voluntary strike off is to avoid paying late filing penalties as a result of missing the annual accounts filing deadline at Companies House.
When accounts are overdue, the company will automatically incur a fine when they are eventually filed. So, rather than deliver their annual accounts after the deadline and pay a late filing penalty, some people choose to dissolve their companies instead. Surprisingly, this is permitted by Companies House.
These are just a few examples to give you a general idea of why someone might dissolve a limited company. Ultimately, it will be because the directors or members (shareholders or guarantors) decide that the company is no longer required.
However, there is no requirement to provide Companies House with a reason when applying for voluntary company dissolution.
Common reasons for involuntary dissolution
Involuntary dissolution (forced dissolution by Companies House) occurs if the registrar believes that the company is no longer in business or carrying on operations. Companies House may take this view if:
- The company has failed to keep up with its statutory reporting obligations, such as filing confirmation statements, annual accounts, or Company Tax Returns
- Official mail that Companies House has issued to the company's registered office address is returned undelivered
- The company does not have any directors
Companies House will take all reasonable steps to determine if the company is still operating before moving to dissolve it.
How to dissolve a company voluntarily
To dissolve a company voluntarily, the directors (or a majority of them) must give their formal approval by passing a board resolution. This can be done by voting in person at a board meeting or remotely via written resolution.
However, some companies may include different provisions in their articles of association or shareholders' agreement, whereby the members must approve any strike off application – check your articles and shareholders' agreement beforehand if you're unsure.
If a majority of the directors (or members) approve the dissolution, they can make an application to Companies House on form DS01.
The form must include the following details:
- Full company name
- Registration number
- Name and signature of the sole director (if only 1), both directors (if there are 2), or the majority of directors (if there are more than 2)
- Date of signatures
- Name and contact details of the person presenting (filing) the form
The form can be filed online via Companies House WebFiling service or by post. You must include the filing fee of £8 (online application) or £10 (postal application).
Alternatively, you can ask Rapid Formations to take care of this for you by purchasing our Company Dissolution Service.
Eligibility criteria for voluntary company dissolution
To be eligible for voluntary company dissolution, certain criteria must be met, as set out in section 1004 and section 1005 of the Companies Act 2006.
You can only apply to strike off a company if it:
- Has not traded, sold off any of its stock, or otherwise carried on business in the last three months
- Has not changed its name in the last three months
- Is not the subject of any insolvency proceedings (e.g. liquidation) or a section 895 scheme
- Does not have existing agreements in place with creditors – e.g. a Company Voluntary Arrangement (CVA)
- Does not have any bearer shares in issue
- Has not engaged in any activity other than one which is necessary for the purpose of:
- making an application for dissolution or deciding whether to do so (e.g. seeking professional advice regarding the application or paying the strike-off application filing fee)
- winding up the affairs of the business (e.g. settling trading or company debts)
- complying with statutory requirements
- making a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business*
*For example, if your company was in the business of selling flowers, you would be prohibited from selling flowers during the three-month period prior to making a company dissolution application, but you would be permitted to sell the van that you previously used to deliver your flowers.
If you are a director, you must not resign before making a company dissolution application – you have to be a director of the company when the application is received at Companies House.
When Companies House receives your company dissolution application
Once your company dissolution application has been received, Companies House will examine it. If the form is acceptable, Companies House will:
- Register the proposed dissolution information and publish it on the public register of companies
- Send an acknowledgment to the contact address stated on the application
- Send a notification to the company's registered office address – this is to enable the company to object if the application is fraudulent
- Publish notice of the proposed company dissolution in The Gazette – this is to give interested parties an opportunity to object
- Publish a copy of The Gazette notice on the public register
Provided that no objections are raised and there are no reasons to delay the dissolution, Companies House will strike the company off the register not less than two months after the date of the notice.
The company will be dissolved and another notice will be published in The Gazette stating that the company has been struck off.
However, even after the company has been dissolved, Companies House will continue to hold information on it. Furthermore, company formation and dissolution files will remain on the public register for a period of 20 years after its been struck off.
What is The Gazette?
The Gazette is the official journal of record in the UK. There are three publications, each of which announces statutory notices, including company strike off and restoration notices, relevant to one of three UK jurisdictions:
- The London Gazette – for companies registered in the jurisdictions of England & Wales and Wales only
- The Edinburgh Gazette – for companies registered in the jurisdiction of Scotland
- The Belfast Gazette – for companies registered in the jurisdiction of Northern Ireland
When Companies House publishes a strike off or restoration notice, it appears in the weekly Gazette for the part of the UK in which the company is registered.
Before applying for company dissolution – important steps
Prior to making an application to dissolve your company, you must close down the business legally. To do so, you will need to:
- Tell HMRC and all other interested parties that you are planning to strike off the company
- Ensure that your employees are treated in accordance with Employment Law rules
- Deal with all of your business assets and accounts
Any business bank accounts in the company name will be frozen from the date of dissolution. Therefore, you must transfer credit balances, close your company bank accounts, and transfer ownership of any other business assets beforehand.
If you do not do this, everything will pass to the Crown and you will have to restore the company to get these assets back.
Who to notify after making a company dissolution application
Within seven days of filing your striking off application, you must send a copy to anyone who may be affected by the company's closure. This includes:
- Shareholders or guarantors
- Creditors, such as banks, suppliers, landlords or tenants, guarantors, personal injury claimants, former employees (if they are owed money from the company), and HMRC
- Employees
- Managers or trustees of employee pension funds you have in place
- Any directors who didn't sign the application form
You also need to send a copy of the striking off application to anyone who, at any point after making the application, becomes a:
- Director
- Member
- Creditor
- Employee
- Manager or trustee of employee pension funds you have in place
This has to be done within seven days of the person assuming one of these positions in relation to the company.
How long does it take to dissolve a company voluntarily?
Once you have filed a company dissolution application at Companies House, it typically takes between two and three months for the company to be struck off the register. This is because of the two-month period set aside for interested parties to make an objection, following the publication of the dissolution application in The Gazette.
Do you need help dissolving a limited company?
Our Company Dissolution Service is available to existing clients and non-clients alike. Priced at just £69.99 plus VAT, we'll take care of your company's dissolution from beginning to end – ensuring that everything goes as smoothly as possible.
We hope that this article has provided valuable insight into company dissolution in the UK, including the most common reasons why companies are dissolved, the difference between voluntary and involuntary strike off, and how to make an application to Companies House.
If you have any questions or need help to set up or dissolve a company, please leave a comment below.
Source: https://www.rapidformations.co.uk/blog/company-dissolution-you-need-to-know/
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