Dissolving a company is a way of closing or shutting down a business. This may occur as a result of unfulfilled aims and objectives of the company likewise unexpected financial problems. This article provides you with the meaning of company dissolution, information on company dissolution in the UK, a company dissolution form, and a guide on liability company dissolution.
Company Dissolution Meaning
Company dissolution, also known as “striking off” or “winding up,” is a slow process of removing a company’s name from the official register at Companies House. When this happens, the company ceases to legally exist. However, companies may either dissolve voluntarily or involuntarily.
Voluntary company dissolution is under the authorization of shareholders, or if there are no shareholders; it will be under the authorization of the director(s). There are also instances of involuntary dissolution, in which Companies House will legally close down companies that have fallen behind on responsibilities such as tax returns and accounts.
Voluntary Reasons for company dissolution
#1. Insolvency:
Insolvent issues occur when the company is not able to pay its debts as a result of cash flow problems. This means they have not paid their bills or there are more liabilities than assets on the balance sheet.
#2. Fulfilled Goals:
This happens when the directors decide the company has fulfilled its initial goals and purpose of existence and doesn’t need to continue. The company will now dissolve, and it will no longer be in the register of the company house.
#3. Disagreements Amongst Key Partners:
This happens when partners have fallen out and can’t agree on the future direction of a company. Directors might also move to close a company if they see that it will become harder to keep the finances intact. If there is no clear vision, the business partners may fall out over which direction the company should take, and key managerial decisions. As this conflict escalates, it can only take a toll on business profits, and at a certain point, the simplest decision may be to dissolve the company.
However, companies may choose to dissolve voluntarily under the authorization of shareholders or, if there are no shareholders, under the authorization of the director(s).
Involuntary Reasons For Company Dissolution
When a company has not followed the rules for corporate entities; the Court of Common Pleas may order to dissolve it; to protect shareholders’ investments. This may happen when these three conditions exist:
- If the directors of the company are engaging in illegal or fraudulent activities.
- Unwise spending of companies assests
- There is a deadlock among the directors of the company regarding a major decision, and they are unable to resolve it.
Procedure For Dissolving A Company
If you have a clear understanding of the meaning of company dissolution. This will guide you on how to dissolve your company. Read on to find out the legal procedure for dissolving a company:
#1. Winding-up.
This constitutes the legal end of the company. It entails de-registration once liquidation occurs. However, winding up does not always result in liquidation. In the following instances, the company continues its activity even after winding-up, but within a different structure:
- Change of legal status, for example, changing from limited company to limited liability company.
- Merger with the takeover of assets and liabilities by another company of the same legal structure.
- Takeover by a corporation under public law.
Although winding-up operations usually result in the deletion of the former company from the trade register.
#2. Liquidation
This consists of selling off all the company’s assets and paying off its corporate debts using the proceeds. Sometimes it’s a voluntary process for a company that is solvent but wants to close. In most cases, if the business is insolvent, it won’t be able to carry on because of its financial problems.
This is a compulsory liquidation, where creditors have to ask a court to grant a winding-up order. Ideally, selling the assets means that you can repay all the creditors; but this doesn’t always happen. However, liquidation doesn’t apply to sole traders, as there’s no legal distinction between the individual and the business.
The insolvency routes for sole traders are the personal options, such as individual voluntary arrangements (IVAs) and bankruptcy (or sequestration and Protected Trust Deeds (PTDS) in Scotland).
#3. De-registration
This is the permanent removal of the company’s name from the trade register. This occurs when two or more successive annual returns are outstanding, in which case the company or close corporation will automatically refer the system and then notify you by registered mail or alternative electronic methods of communication. The contact details or the commission records will be used to communicate the deregistration. If your contact details are incorrect, the Commission will not be liable if you have not received such notification before deregistration.
Companies and close corporations are responsible for informing the Commission of contact details to ensure that they receive relevant notifications and reminders.
Company Dissolution Form
Company dissolution in the UK involves the completion of several forms. If you have permission to do business from your state, you will need to send the state some form of notification that you are dissolving your company and that you have followed whatever state statutes there are regarding paying creditors and distributing profits. This can be accomplished with Articles of Dissolution and/or a Notice of Intent to Dissolve. Forms and filing requirements differ also from state to state, it is important to seek advice from any legal practitioner to guide on how to get and fill out the form. Below is an article of dissolution form instructions that will help you prepare for council meetings.
Articles of Company Dissolution Form Instructions For Corporations
These instructions are for use with amendments to the original articles for business and professional corporations.
- Name of The Corporation
- Date The Dissolution Was Authorized: This is the authorized date for the amendment of the dissolution. This date would not be a future date.
- Complete Either Section 4 or 5.
- Date of Incorporation: Date that the Corporation was originally formed.
- How Was The Amendment Approved: Complete the required information. If the amendment is adopted by the incorporators or the board of directors without shareholder action, check the appropriate section. If the amendment was approved by the shareholders, include the information regarding the vote.
- Execution/ Signature: The signer must declare as an authorized signer, under penalty of perjury, that this document does not conceal fraudulently, fraudulently alters, or misrepresents the identity of the person or any official, director, employee, or agent of the corporation. This document has been examined and is true, correct, and complete. Making false statements in this document is against the law and can be penalized with fines, imprisonment, or both. After filling out the company dissolution form you can now proceed to submit your form for dissolving your company. However, understanding the meaning of company dissolution and how to use the form will guide you on how to dissolve your company.
Company Dissolution UK
Understanding the meaning of company dissolution in the UK gives you a clue on how to dissolve a company in Uk.
Firstly, you have to write a form to DS01, applying that you want to dissolve your company, after which they will send it to the Companies House, or you can still make the application online.
Secondly, the director(s) will sign the form(or all of them if there are only one or two). Also, you will have to send copies of the UK company dissolution form to all ‘notifiable parties’ which include creditors, employees, shareholders, and other directors of the company, within 7 days of making the application.
They will place a notice in the Gazette announcing your decision to dissolve the company. They will officially dissolve the company in three months after this notice, providing there are no objections. The Gazette will finally run a notice confirming the dissolution of your company.
Liability Company Dissolution
Many corporations still have some outstanding debts or tax obligations when they cease operations. So dissolving a company with debt is not ideal, even when the company does not plan to generate revenue to pay its liabilities. The management must complete its obligations. Most corporations don’t have an exit strategy either, which means they don’t have a plan for taking care of these tasks.
Liability is one of the most common challenges for company dissolution in the UK. The liabilities for outstanding debt will vary depending on a company’s structure and what type of debt they owe. Before dissolving a company with liabilities, if you have no immediate prospect of income, consider selling it to another agency. This will preserve your agency’s name, and the client list may be valuable assets for which another agency might pay you a percentage of future business. But If you want to dissolve your company, here’s what you need to know:
#1. Preserve Your Corporation
Many companies believe they can get rid of their company’s debts by dissolving their corporation or limited liability company (LLC), i.e., by filing a paper with the secretary of state to end the existence of the corporation or LLC. Although company dissolution does not only affect your liability, it may also make it easier for creditors to sue the company.
Therefore, keep the corporation in existence until you settle all claims and pay all tax. Also, keep your bank accounts open and fund them as needed to pay any of your company’s continuing obligations.
#2. Keep Filing Your ARC
If you have an ARC appointment, make sure you continue to file ARC sales reports as long as it is necessary to pay for all tickets. If you stop filing before you report all tickets, ARC may sue you for ticket fraud.
#3. Don’t Withhold Taxes
If you had any employees before you dissolved, make sure to remit the federal and state withholding taxes for wages that you paid and file the required quarterly employer returns. Otherwise, the IRS will hold your company liable for unpaid withholding taxes.
#4. Observe State Corporate Formalities
If you operate as a corporation, make sure to continue to observe your state’s required corporate formalities, such as filing annual reports and maintaining corporate records. Otherwise, creditors could try to get a court to disregard your corporation and hold your company dissolution liable for the corporation’s liability.
#5. Negotiate A Settlement
If any company liabilities are personally guaranteed, such as an office lease or company credit card, try to negotiate a settlement by pleading poverty with the creditors, who might otherwise sue you if they notice that you have enough money to pay the debts. However, you should not file for bankruptcy if you have a small liability to pay, it’s prudent to find an experienced bankruptcy lawyer to help deal with creditors for any guaranteed company dissolution. However, a clear understanding of the meaning of company dissolution gives you a clue on how to dissolve your company.
What Happens When a Company Goes into Dissolution?
When a company goes into dissolution, its name will be removed from the company register in the company house, and it ceases to legally exist.
Can I Register a Company Name That Has Been Dissolved?
A dissolved company name can still be registered with a new or existing company.
Can a Dissolved Company Be Taken to Court?
A dissolved company can be taken to court if it’s still in existence. It’s not possible to take legal action against a company that doesn’t exist, so in order to make a claim against such a company, it’s first necessary to get it reregistered. To do this, you’ll need to get a court order.
What Is the Difference between Dissolution and Liquidation?
The difference between the two is that dissolution is a (typically voluntary) legal closure of a business, while liquidation involves the selling of a company’s assets in order to pay creditors.
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