While liquidation is often associated with insolvent companies, there are in fact many reasons why you may be considering closing your profitable company using such a process.
Perhaps you are approaching retirement and there is no one suitable to pass the business on to, maybe you are moving on to a new venture, or the market may have simply moved on rendering your company surplus to requirements. Regardless of the reasons for bringing an end to your solvent company, a formal liquidation process known as a Members’ Voluntary Liquidation – or MVL could be the most beneficial way for you to achieve this.
An MVL allows for all proceeds tied up in a company to be extracted and distributed to shareholders in a tax-efficient manner. With an MVL, funds are paid out via capital distribution, meaning that distributions are taxed as capital gains rather than income. In many cases shareholders will be able to take advantage of Entrepreneurs’ Relief, which reduces the tax liability further, down to just 10%. Entrepreneurs’ Relief has a lifetime limit of £1m per person and is available to those disposing of the shares of a trading or holding company or group which they have held at least 5% of the voting rights for at least two years.
Director Redundancy Entitlement – Did you know that as a limited company director, you may be entitled to claim redundancy if your company enters into an insolvent liquidation process? We can point you towards a fully regulated third party who can provide advice on your right to claim director redundancy if this is applicable to your situation. To understand if you are entitled, give a member of our team a call on 0800 063 9262, or email [email protected].
The MVL process is particularly suited to companies with in excess of £25,000 worth of cash and assets to distribute. This is an alternative to striking off the company using a DS01 form which would see all profits classed as income and taxed accordingly. MVLs are only suitable for solvent companies. A company’s solvency will be tested using the following metrics:
Shareholders will need to sign a sworn Declaration of Solvency as part of the MVL process to testify to the company’s solvent nature.
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As a formal liquidation process, an MVL can only be entered into under the guidance of a licensed insolvency practitioner who will assume the role of liquidator. An MVL works in much of the same way as an insolvent liquidation, with the liquidator responsible for realising the company’s assets, settling any ongoing disputes, before distributing the proceeds. They key difference is that with an insolvent liquidation, the proceeds would be paid to outstanding creditors, while in an MVL, the proceeds are distributed amongst the company’s shareholders. Following clearance from HMRC, the company will then be dissolved and its name removed from the register held at Companies House.
MVLs are only suitable for solvent companies. However, if your company is solvent and has over £25,000 to distribute, and you are looking to close down the business and extract these profits, then an MVL is likely to be the best solution.
At UK Liquidators, our service is fully partner-led and your case will always be overseen by a fully licensed insolvency practitioner.
If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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