Closing a Company with Debts: Everything You Need to Know
Closing a company with debts requires that you follow the steps set out by your state or country's government. These steps can help you avoid legal issues.3 min read
Closing a company with debts requires that you follow the steps set out by your state or country's government. These steps can help you avoid legal issues.
Closing a Company With Debts
The United Kingdom has specific steps for closing a company with debts. The steps depend on whether or not the company has the funds available to pay off any debts.
A company may be left with the following debt:
- Insurance from payroll
- Corporation taxes
- Bank loans and overdraft fees
- Accounting fees
- Director or shareholder funds
- Supplier invoices
- Lease agreements
A company that still has debts upon dissolving should be categorized as administrative dissolution or liquidation.
Liquidation would force the company to sell off any assets to pay these debts. In a liquidation, an insolvency partner will manage the day-to-day affairs of the company while evaluating the finances and selling the assets. Liquidation costs in this method start at around $2,500.
Another method often used to pay off debt is to claim redundancy for the director's pay. This claim is usually around $1,250. Liquidating or filing a redundancy claim is not always an option. In this case, it is best to file an administrative liquidation. An administrative dissolution costs much less, starting at just $250.
Steps for Dissolving a Company With Debts
If a company is in a position to pay off its debts, it should follow these steps:
- Avoid taking on additional business.
- Pay all directors' loans.
- Additional debt should be paid. The company bank account should be kept open until all debts are paid.
- Return any company vehicles and cancel contracts.
- Run a final payroll for staff and submit payment.
- Cancel VAT registration after the completion of the final VAT (value-added tax) return.
- Directors may resign. It is important, however, that at least one director stays on to deal with the closing.
If you have paid off all debts and desire to keep the business legal, it is possible to do so with a fee. This fee pays to reserve the company's name. Some company owners may choose to do this to maintain the credibility of the business.
This process can take many months. It is important to follow each of the steps to officially and legally dissolve the company.
Dissolving a Company With Unpaid Debt
Not every company has the funds available to pay off debts. It is not common that a company is permitted to dissolve when it still has funds. Dissolving a company with debts requires careful consideration of the following factors:
- Dissolution approval: A corporation dissolution must be approved by the board of directors and owners of the business. During the approval process, the directors will evaluate the finances and whether or not they can pay off debt.
- Resolving claims: The first step of dissolution is to begin resolving claims. If funds are limited, payments should be paid in order of priority. Debts with collateral should be paid first.
In general, closing a solvent company can be done in one of two ways:
- Striking off the company: This requires the completion of specific steps required by the state, such as notifying all vendors of the company's dissolution.
- Entering into a member's voluntary liquidation: This is the process when members begin paying off debt before dissolving the company.
It is important to understand the specific steps required to dissolve a company to avoid legal consequences. If you need help with closing a company with debts, you can post your legal need on Legal Marketplace's marketplace.,0The Best Lawyers For Less
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