I’ve had enough of this working lark, what can I do?
The shareholders of a company may wish to close down a limited company because:
- They want to retire,
- They no longer wish to run the business,
- They want to step down from the family business and there is no one willing or able to take over, or
- The Company is part of a group that is being streamlined.
Whilst it is possible to declare final dividend and then dissolve the Company, this is not always the most cost-effective solution, particularly from April 2016 following the changes to dividend taxation declared in the recent budget.
An alternative to dividends, if the company is solvent, is for the shareholders to place the company into Members Voluntary Liquidation (‘MVL’).
This requires that the Company be able to meet its’ liabilities in full, plus statutory interest and the cost of liquidation within twelve months of the date of liquidation.
The Liquidator (appointed by the shareholders) can the distribute the liquid assets of the company by way of a capital distribution, and either convert the non-cash assets to cash then distribute, or distribute non-cash assets (known as a ‘dividend in specie’).
The benefit of a MVL to the shareholders is that the funds extracted attract Capital Gains Tax (‘CGT’), rather than Income Tax. If Entrepreneurs’ Relief is available, this can further reduce the rate of tax from the CGT rate (of 18% or 28%) to 10%, resulting in significant tax savings.
[Written in September 2015]
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