Solvent Liquidation
A company may outlive its usefulness for a number of reasons including:
- It has ceased to trade;
- It no longer serves its purpose;
- The group structure needs to be simplified;
- Distribution of paid up share capital and capital reserves free from tax.
(Outside the liquidation process the distribution of these tax-free reserves may have significant
taxation implications).
There are generally two ways to bring a solvent company to an end:
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- Deregistration; and
- Solvent Liquidation
Which one do I choose?
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- Deregistration is a quick, easy and cost effective method of terminating a company. It is the most appropriate method where the company’s affairs are simple with no taxation issues. The company will have ceased to carry on its business, lodged all tax returns, discharged all of its liabilities, and disposed of its assets. All members must agree to the deregistration.
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Where a company has untaxed capital profits deregistration is not the most appropriate option.
Solvent Liquidation?
The majority of directors must declare that the company will be able to discharge all of its liabilities within 12 months. The company must then convene a general meeting and resolve to appoint a liquidator.
What are the taxation implications?
Distribution can be made in cash, of assets via an in-specie distribution at market value, or may be offset against shareholder loan accounts.
A member receiving a distribution from the liquidation will need to consider their own tax implications separately to those of the liquidator.
The specific circumstances of each particular company must be considered in order to determine the most tax effective means of winding up.