When a company stops trading it can be:
- Dissolved and struck off the Companies Register.
- Wound-up by a liquidator in a compulsory or voluntary liquidation.
- Left as dormant.
The advantages of each depend on the circumstances.
Striking off
Striking off is a procedure where a solvent company can be simply struck off the Companies Register. Companies House have issued a new form DS01 to allow this.
All assets should be transferred out of the company before it is struck off.
If the company has share capital or non-distributable capital reserves which are in excess of £4,000 these should be distributed following a statement of solvency given by the directors under a capital reduction prior to striking off, to avoid Bona Vacantia.
If a company has not discharged all its debts or is insolvent when it is struck off, it may be returned to the Register (up to 20 years later) and its directors may be held personally accountable to its creditors.
HM Revenue & Custom's (HMRC) Extra Statutory Concession C16 can be used (with HMRC's prior approval) to ensure that all distributions made on winding up are treated as capital.
Striking off requires some care, because once a company ceases trading its shares lose their status as trade assets which can affect Capital Gains tax (CGT) and Inheritance tax (IHT) reliefs for shareholders.
Liquidation
Liquidation is a process in which a company is wound up by a licenced insolvency practitioner. This adds to the cost. It is the only way to wind up a company if its affairs have become very complex or it is insolvent. Once wound up in this way a company cannot be restored to the Register for more than two years.
Remaining dormant
A company can be left with or without its assets as a dormant shell. This may well effect its status for CGT or IHT, as once it stops trading its shares will cease to be business assets.
