In the lifecycle of any business, there comes a time when a company must close its doors, either due to a change in strategy, unprofitability, or simply because it has fulfilled its purpose.
One method to achieve this in the UK is through a process known as ‘striking off’.
But what does this process involve, and how can it be carried out effectively and legally?
This comprehensive guide will delve into the concept of striking off a company, providing insights into what it means, the process involved, costs associated, potential consequences, and how to navigate this complex journey.
From voluntary to compulsory strike-offs, and understanding the legal and financial implications, this article aims to equip business owners with the knowledge they need to make informed decisions about striking off a company.
What Does Striking Off A Company Mean?
Striking off a company, also referred to as dissolving, pertains to the process through which a company is permanently closed down and its name removed from the Companies House register.
When a company is struck off, it ceases to exist as a legal entity, thereby rendering it incapable of trading or conducting business activities.
Striking off a company can be initiated voluntarily by its directors or enforced (compulsory) by Companies House, typically due to a failure in complying with legal obligations.
The implications of striking off a company are significant, affecting legal, financial, and practical aspects of the company and its operations.
These implications, therefore, need careful consideration by the stakeholders of the company, including its directors, employees, and creditors, amongst others.
It’s not a decision to be made lightly or without due consideration of the potential consequences.
How Do You Strike Off a Limited Company Step-by-Step?
Striking off a limited company involves several steps, which should be carefully followed:
- Cease trading: For three months prior to submitting an application for strike-off, the company must have ceased trading. This includes not selling off stock or changing names.
- Settle debts and liabilities: The company must pay off all its outstanding debts and liabilities, including payments to creditors, suppliers, and any outstanding salaries or employee benefits.
- Notify stakeholders: Directors should notify all relevant parties about the intention to strike off the company. This includes employees, shareholders, creditors, and suppliers.
- Complete and submit the DS01 form: The directors must complete and submit a ‘Striking off application by a company’ (DS01) form to Companies House, with the accompanying fee of £10.
- Wait for Companies House approval: Once the application has been received, Companies House will scrutinise the application and, if all the criteria are met, will approve the application for the company to be struck off. This process usually takes about two months.
It’s crucial that each of these steps is followed to ensure that the strike-off process is legal and effective.
How Much Does it Cost to Strike Off a Ltd Company?
As of September 2021, the official fee for applying to strike off a company in the UK is £10.
This fee is paid directly to Companies House upon submission of the DS01 form.
However, it’s crucial to bear in mind that this is simply the application fee and does not include any potential costs associated with preparing for the strike-off.
These additional costs may include settling any remaining debts, legal costs, accounting costs, or costs associated with the disposal or transfer of the company’s assets.
Therefore, the actual cost of striking off a company can be substantially higher and will depend on the specific circumstances of the company in question.
What Happens After a Limited Company Has Been Struck-Off?
When a company is struck off, it legally ceases to exist. As such, the company cannot continue to trade, and any ongoing business activities must cease.
The bank account of the company will be frozen, and any remaining assets, including physical assets, intellectual property, and cash reserves, will be seized by the Crown as ‘bona vacantia’ or ownerless property.
This means that the assets are essentially forfeited, and any remaining value in the company is lost.
The name of the company is also made available for others to use, meaning that a new company could be set up using the same name.
Directors, employees and shareholders will no longer have any legal affiliation with the company.
How Should You Prepare to Strike Off Your Company?
Before striking off a company, there are a number of preparatory steps that must be taken.
These steps are necessary to ensure that the company can legally be struck off and that the process goes as smoothly as possible:
- Settle debts and liabilities: It’s crucial that all available funds are used to pay debts and liabilities are settled before the company is struck off. This may include paying creditors, settling any disputes or legal claims, and making any necessary final payments to employees.
- Notify relevant parties: Directors should notify all relevant parties of the intention to strike off the company. This includes employees, shareholders, creditors, and suppliers.
- Distribute assets: Any remaining assets should be distributed among the shareholders before the company is struck off.
- Ensure compliance with tax and reporting obligations: Directors should ensure that the company is up-to-date with all tax and reporting obligations to HMRC and Companies House. This includes filing any final accounts and tax returns and submitting any necessary final reports or confirmation statements to Companies House.
What is a Voluntary Strike-Off?
A voluntary strike-off is an action initiated by the directors of a company, often when the company is no longer required or if it is not generating enough profit to justify its continued operation.
This method gives directors more control over the process and can often be less costly and complex than a compulsory strike-off.
However, the company must still meet certain conditions, such as ceasing trading and settling debts, before the strike-off application can be made.
The voluntary strike-off process provides an effective means for directors to wind up a company’s affairs in an orderly manner, and can often be a practical solution when a company has served its purpose or is no longer viable.
What is a Compulsory Strike-Off?
Unlike a voluntary strike-off, a compulsory strike-off is initiated by Companies House, usually when a company fails to meet its statutory obligations.
These obligations could include filing annual accounts, submitting confirmation statements, or paying necessary fees.
If a company fails to meet these obligations, Companies House may send a warning letter indicating the intention to strike off the company.
If there is no response or the issues are not resolved, the company will be struck off the register.
A compulsory strike-off can have serious consequences for the directors, including potential personal liability for company debts and disqualification from acting as a director in the future.
Can You Strike-Off a Limited Company With Debts?
In general, a company cannot be struck off if it still has outstanding debts.
As part of the process of preparing for a strike-off, a company is required to settle all debts and liabilities.
This includes not only financial debts to creditors but also any outstanding obligations to employees, suppliers, or other parties.
If a company is struck off while still having unpaid debts, the creditors can apply to the court to have the company restored to the register in order to recover its debts.
Furthermore, directors of the company could be held personally liable for the debts if they have acted irresponsibly or dishonestly in relation to the company’s finances.
Once a Ltd Company Is Struck-Off, Can it be Reinstated?
Yes, a struck-off company can be reinstated, but this process is not straightforward. Restoration requires a court order and can be a costly and time-consuming process.
This process is usually initiated by parties who have an interest in the company, such as former directors or creditors.
The party seeking restoration must be able to provide a valid reason for the restoration, such as the need to recover assets or enforce a legal claim.
It’s also important to note that even if the company is restored, it may not be able to resume its previous activities exactly as before, depending on the circumstances.
Can You Prevent Your Company From Being Struck-Off?
Yes, a company can prevent being struck off by ensuring it complies with all statutory requirements and promptly addressing any issues that could lead to a strike-off.
If Companies House sends a warning letter about a pending strike-off, the company should act immediately to resolve the issues.
This could involve filing overdue accounts, paying late fees, or resolving other compliance issues.
The company may also wish to seek legal or professional advice to ensure it understands its obligations and how to meet them.
What Are 3rd Party Objections to Strike-Offs?
Third parties such as creditors, employees, directors, or shareholders can object to the strike-off of a company if they believe it will be detrimental to their interests.
For example, a creditor may object if they believe the company still owes them money, or an employee may object if they believe they are owed wages or other benefits.
To lodge an objection, the third party needs to contact Companies House and provide evidence to support their claim.
If the objection is upheld, the strike-off process will be halted until the issue is resolved.
What Happens to Assets When a Company is Struck-Off?
When a company is struck off, any remaining assets become property of the Crown, under the legal doctrine of ‘bona vacantia’, or ownerless goods.
This includes any cash balances, property, or other assets.
The Crown can then decide what to do with these assets, which may include selling them to recover any debts owed by the company.
Therefore, before striking off a company, directors should make arrangements to dispose of or transfer any remaining assets.
What Happens to Directors When a Company is Struck-Off?
Once a company is struck off, its directors are no longer legally responsible for the company.
However, they could still be held personally liable for any debts or liabilities of the company if they have acted irresponsibly or fraudulently.
Furthermore, if the company was struck off due to non-compliance, the directors could be disqualified from acting as a director of any other company for a certain period of time.
It’s also important to note that being a director of a struck-off company does not prevent an individual from becoming a director of another company, provided they are not disqualified for other reasons.
Can HMRC Investigate a Struck-Off Company?
HMRC can investigate a struck-off company if they suspect any fraudulent activity or other financial misconduct.
This could involve scrutinising the company’s financial records, interviewing former directors, or taking other investigatory steps.
If HMRC believes that there is evidence of criminal activity, they can apply to the court to have the company restored to the register in order to conduct a full investigation.
Directors of a struck-off company can still be held liable for any criminal activity or misconduct that occurred while the company was active.
What is the Difference Between Striking-Off a Company and Liquidating It?
The main difference between striking off and liquidation is the process and the circumstances under which they occur.
Striking off is a relatively straightforward process, often suitable for small companies that have ceased trading, have no assets or liabilities, and simply wish to be removed from the Companies House register.
On the other hand, liquidation is a formal process carried out by a licensed insolvency practitioner and is typically used for companies that have significant assets or liabilities.
The liquidator’s role is to sell the company’s assets in order to pay off its debts.
If there are any remaining funds after all debts have been paid, these are distributed among the shareholders.
Related Post: How Long Does it Take to Strike Off a Company?
Final Notes On How To Strike Off A Limited Company in the UK
Striking off a company is a significant decision and should not be taken lightly.
It’s important to understand all the legal and financial implications before proceeding.
In particular, directors should ensure they have fulfilled all their obligations and that all debts and liabilities have been paid.
Furthermore, they should consider seeking professional advice to ensure they are making the best decision for the company and its stakeholders.
Despite the complexities, striking off can provide an effective means of closing a company that has served its purpose or is no longer viable.
However, directors should always act responsibly and ethically during this process, considering the impact on all stakeholders.
Let Marchford Be Your Trusted Guide During the Strike-Off Process
Navigating the process of striking off a company can be complex and intimidating.
At Marchford, we understand the challenges and are committed to guiding you through each step with clarity, professionalism, and a personalised approach.
We are experts in assisting directors of struggling limited companies strike off their business from the Companies House register.
With our expertise, we can simplify the process and ensure you fulfil all legal and financial obligations, offering you peace of mind during this significant transition.
Don’t navigate this path alone.
Contact us at Marchford today and let us guide you through a smooth, compliant, and stress-free strike-off process.
Your company’s closing chapter deserves the guidance of experienced professionals.
Trust Marchford, and we’ll deliver the support you need, when you need it.