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What Is A Limited Company Strike Off?

companies house striking off

A limited company strike-off is the process of a business being formally dissolved and removed from the Companies House register. It is the process that legally completes the closure of the company and releases it from any further reporting obligations.

It can take around 3 months to complete the strike-off. During this time the business can continue to trade, but once finalised, the company will cease to exist and any assets will revert to shareholders.

Whilst the process can be reversed, it’s intended to be a permanent solution to formally close down an inactive company that will no longer trade again.

Read on for more information about the process of winding down a company and alternatives that can be considered depending on your current situation. 

Reasons For Striking Off

Companies can choose to strike themselves off and may do so for several reasons. If they are no longer trading or they no longer need a formal company structure for example. By closing the business officially, it’s much easier to manage their affairs, as the business owners will no longer need to submit formal accounts and documents to Companies House annually.

If a company structure has been set up but is no longer needed, for example when setting up a new business venture that never came to fruition, then striking it off is a logical move. Having the company set up without actually trading results in administrative tasks such as submitting annual accounts so closing it down will reduce the admin burden.

If a business has unmanageable debts and liabilities it has become insolvent and cannot continue to trade. The directors can strike an insolvent company off the register or as a last resort claim bankruptcy which has its own different set of repercussions.

An active company incurs costs, even if not trading. As annual formal accounts must be submitted, this requires accountancy expertise which will incur a cost. By striking off the business, these costs are removed.

When a company stops trading or conducting its business activity, there is rarely any need to keep the business open legally. Striking it off is the final part of the process to completely shut down the business.

Businesses come and go but several common reasons may lead company directors or shareholders to decide to strike one off as outlined above.

How To Strike Off A Business

Striking off a business can take up to 3 months to allow enough time for proper notice to be given and time for objections to the closure to be made.

The following steps explain the process of how to strike off a company so that it no longer legally exists:

  1. Apply DS91 to Companies House. This comes from the directors or majority shareholders and is accompanied by a final set of accounts. There is a £10 charge for the strike-off process.
  2. Companies House will notify you that your application has been received and then publish a notice in The Gazette. (A public announcement website relating to official public records).
  3. A 2-month notice period then follows where objections to the closure can be submitted. This could come from creditors with unpaid debts for example.
  4. If no objections are submitted, the company will cease to legally exist and a second notice will be published on the Gazette to confirm this.

If during the process of striking a company off the business starts trading again or it has become insolvent, you can withdraw the application with the signature of one director. This can only happen if the company is still on the Companies Register.

What Is a Companies House And How Does it Fit Into Strike Offs?

Companies House is the UK Government’s public list of businesses. It holds the details of businesses, their owners and their financial status in the public domain. It is instrumental to the process of striking off a business because the organisation oversees the task from start to finish.

Business owners need to apply to Companies House to strike off, provide information to Companies House through the application, and eventually be advised by Companies House that the business has been successfully struck off.

The Outcome Of Striking off

Once a company is legally struck off the business register it means that:

  • The company no longer legally exists.
  • Any assets owned by the company revert to the company shareholders
  • Annual accounts, confirmation statements or other official documents no longer need to be submitted to Companies House each year because all legal duties have ended.
  • Striking off is intended to be permanent but it is possible to restore a business if needed but this involves administration time and a fee.

As a result of the strike-off, directors are no longer responsible for the company which means they no longer need to complete the duties assigned to them as directors. They are however still liable for misconduct that occurred during the tenure of the company.

If a company has staff on the books at the time business owners are considering striking the business off, they need to be fully consulted before the application is made. Any employment contracts will be terminated when the company is struck off so it’s important to give plenty of notice to staff of the intention to cease trading.

If workers have wages, redundancy, notice periods and other employment rights, these can still be enforced after the strike off because directors retain liability for their actions during the period their company traded, even after it has been closed.

Business bank accounts can no longer be held in the company name once it has been struck off. If there is residual cash in the bank, this is transferred back to shareholders. Another important financial step is to ensure that HMRC is made aware of your intentions. This is so that records about corporation tax, PAYE, and VAT can be settled and the records updated to reflect the current business decision to wind up and close the company down.

Due to the liability that Directors will continue to hold, they can be pursued for repayment of company debts if payments to banks, suppliers and other parties have not been settled by the company before it closes.

Alternatives To Striking Off A Company

Striking off a company represents the final stage of legally ending a company’s ability to trade, but several other options including selling the company or making it dormant can be considered if business owners are quite ready to end things so finally just yet.

Selling instead

Selling the company, including its assets and liabilities could be a way of keeping the business open under new ownership. This is a good option if the business is still viable but the business owners no longer want to run it or have become incapable of running it. The sale of the business would generate income for the owners whilst potentially enabling current workers to continue in their roles.

Sales are also considered if directors need to raise cash from the sale of the business to settle cash flow issues in their personal lives. Young companies with intellectual property or technology potential may also be ripe for re-sale rather than striking off.

Making The Company Dormant Instead

A dormant company is still a legal company but it isn’t trading. In this state, the directors must still submit annual accounts and pay a small annual fee but it doesn’t need to submit a full accounts report. The benefit to this is that the company can get back to operations at a later date much more easily than if they need to restore a dissolved status.

This option would suit situations where the business is closed temporarily, such as seasonal businesses or when the COVID pandemic hit in 2020 for example. It’s also a suitable option if valuable assets like copyrights, patents or IP need to be preserved for future sale or licensing. These could be lost when striking off.

If a company still has value either through resale or assets held, dormancy keeps the metaphorical door open, whilst reducing the financial overheads of keeping the business trading.

Who Is Responsible For A Company Strike-Off?

Company directors, shareholders, accountants, legal professionals and Government bodies all have a role to play in the process of striking off a company. Whilst it’s ultimately a director’s decision they will need input from each of the stakeholders below to complete the process.

Directors

Directors hold the main responsibility in the process of a voluntary strike-off. Their remit includes settling taxes and paying employees and creditors before making their application.

Shareholders

Shareholders must approve the director’s decision to strike off the register. This usually requires a majority shareholder approval but the exact process should be outlined in the company’s articles of association.

Company Secretary

The person who holds this official role in the company is responsible for applying to strike off documents to Companies House.

Accountant

Accountants are valuable to help resolve any outstanding tax affairs before the strike-off is complete. They will also need to prepare the formal final set of accounts for the secretary to submit with the application.

Lawyer

Legal support can be useful in the closing down of complicated businesses and advising on ongoing director liabilities post-closure. They can also assist in settling accounts with creditors if debts are one of the reasons the company is closing.

Finally, the Companies House and HMRC have an official role in the process. They complete the final actions needed to remove the company from the register and ensure that all taxes owed have been repaid.

What’s The Difference Between A Voluntary Strike Off and An Involuntary Strike Off?

A business strike-off can be both voluntary and involuntary. The former is when the process is initiated voluntarily by directors, often for commercial reasons whereas the latter is when the strike-off occurs through enforced lawful action due to a failure to meet statutory reporting and registration rules.

In a voluntary strike directors or majority shareholders choose to dissolve the company. This could be for a variety of reasons such as poor trading figures, or a need to raise cash from the sale of the business for example.

When an involuntary strike-off occurs, this has been initiated by Companies House or HMRC without the step of directors or shareholders making the application themselves.

This is most likely to happen when the company fails to submit its annual reporting requirements such as accounts – even though they have been given notice to do so. This could also happen if these organisations can’t make contact with the director for any reason – perhaps due to ill health, death, or lack of updated correspondence details. The notice period and objection timeline are much shorter than the voluntary processes.

 Finally,

To recap, striking off a company is the legal process for dissolving and closing down a business. This is a permanent action that results in the business being removed from the Companies House register but there are other alternatives such as dormancy or selling the business, if value can be extracted from the business in the future.

This can be a voluntary or involuntary process but the outcomes are that the company will no longer legally exist and therefore the financial and compliance burdens are removed from the former business directors and shareholders.

The process takes around 3 months to complete, but if involuntary, will be completed much quicker. Once the strike-off is finished, any assets revert to the shareholders and there are no further reporting duties needed.

If you are winding up a business, seek the advice of a tax advisor, business planner or legal team to ensure that the process runs smoothly.

 

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