A company is a legal person. So, should it die, it should die a legal death. With nearly a thousand companies being struck off the public record at the Companies House every day, it looks like one strike-off follows every new registration!
There are various ways of winding up a company. Part 31 of the Companies Act 2006 (CA) deals with how a company could be dissolved. This piece is about how a solvent private company could be dissolved without going through the expensive hassles of insolvency proceedings that can consume weeks if not months. (see our updated blog post on company strike off here http://www.taxpartnersuk.com/blog/company-strike-off-law-and-procedures/
S. 1003 of CA 2006
An application to strike a company off the public record at the Companies could be made by all the directors of a company or a majority of them. The Registrar will strike it off after expiration of three months after a notice is published in the Gazette.
S. 1004, 1005 of CA 2006
There are situations when an application for strike off cannot be made. These include situations where a company has in the last 3 months:
- traded or otherwise carried on business;
- changed its name; or
- made a disposal its property
In other words in order to be struck off, the company should have been dormant in the last three months in the run up to the application for strike off. An application for strike off cannot also be made where insolvency proceedings are on, or where company arrangements or reconstructions are going on.
Once it is decided that the company needs to be struck-off and can be struck off, the process is simple; send Form DS01 signed by all the directors or majority of them to the Companies House with a payment of £10 and the company will be struck after a period of three months.
But there are several other issues that need to be looked in to particularly when there are assets lefts in the company.
Taxation
Distributions made to the shareholders are considered income liable to tax at rates applicable to individual shareholders. In order to make maximum use of tax reliefs (e.g. Entrepreneurs’ Relief) it is important that distributions made by the company are capital distributions. Sufficient planning should therefore go in to winding up a company. Legislative changes proposed to tax laws effective 01 March 2012 make it all the more complicated.
Capital reduction – (detailed guidance available here http://www.taxpartnersuk.com/blog/capital-reduction-private-companies/)
A strike-off is not a liquidation of the company. So any capital left in the company cannot be distributed. For companies with £1 or £2 capital this poses no problem as leaving behind £2 is not an issue. But companies with a bigger capital base have a problem. For this reason it becomes necessary at times to reduce the capital. S.641 of CA 2006 deals with reduction of capital. S.642 of the Act requires that reduction of capital should be supported a solvency statement dated not more than 15 days before a resolution for wind up is passed by the shareholders.
Solvency statement
S.643 of CA 2006 specifies that a solvency statement should contain an opinion formed by each of the directors that there was no ground on which the company could be found to be unable to pay its debts. The statement should be prepared in the prescribed form and must take in to account all the liabilities of the company.
Finally, before going down this route a trading company should also consider other opportunities, e.g.
a) If it advisable to prolong the wind up process such that capital payments could phased over more than one tax year
b) If reserves could be extracted through tax-efficient methods; dividends, salaries or other income distributions, reimbursement of expenses, benefits etc
c) If keeping the company dormant without actually striking off helps. A dormant company is subject to much less compliance and therefore incurs very little compliance costs.
Tax Partners can advise and plan private company winding up leading to strike-off at the Companies House records, in a way that could be tax-efficient to the shareholders as well as cost-effective to the company!
