The Advantages of Liquidating a Limited Company | Forbes Burton (2024)

FAQs

What are the benefits of liquidating a company? ›

The liquidation of an insolvent company allows an independent registered liquidator (the liquidator) to take control of the company so its affairs can be wound up in an orderly and fair way to benefit creditors. There are two types of insolvent liquidation: creditors' voluntary liquidation. court liquidation.

Private limited companies have limited liability close limited liabilityWhen shareholders are only liable for the amount invested in a company., meaning an investor only loses the initial stake if a company goes bust.

You will no longer have control over the company or anything it owns or be able to act on its behalf. You do still have a role, however. You will be expected to facilitate the process by handing over any documentation or information the liquidator needs and making yourself available for an interview.

disadvantages to Liquidation

Any employees will lose their jobs and so will the directors. Shareholders may have to repay illegal dividends (not paid out of profit). Overdrawn directors loan accounts will have to repaid. Suppliers and creditors will lose money.

Liquidation may be the best option for a company if it is no longer able to meet its financial obligations, if it has a large amount of debt that cannot be paid off, or if it is insolvent.

In general, secured creditors have the highest priority followed by priority unsecured creditors. The remaining creditors are often paid prior to equity shareholders.

Insolvent liquidation occurs when a company cannot carry on for financial reasons. The overall aim of an insolvent liquidation process is to provide a dividend for all classes of creditor, but it is often the case that unsecured creditors receive little, if any, return.

As we've said, any debts that the liquidator cannot repay from the funds raised via the sale of company assets are written off. As a company director, you benefit from limited liability, which means you are not personally liable for debts the company cannot pay.

There can be restrictions on the sale or transfer of shares in a private limited company, often detailed in the company's articles of association. These restrictions can limit flexibility and potentially complicate the process of bringing in new investors or facilitating an owner's exit.

What is the main advantage of a limited company? ›

Limited Liability

One of the biggest advantages of a private limited company is limited liability. This means that the personal assets of shareholders are protected. If the company faces financial trouble or legal claims, the shareholders' personal wealth remains safe.

Liquidation procedures can take anywhere from three months to a year, due to a number of factors including approving liquidation, appointing a liquidator, the sale of company assets and agreeing on creditors claims. Unfortunately, there is no legal time limit on business liquidation.

Once a company goes into liquidation, the powers of directors cease, and the liquidator takes over the company's representation. Assets of the company cannot be sold or transferred without the permission of the liquidator, and all company cash must be transferred to an estate bank account managed by the liquidator.

What happens at the end of a company liquidation? Towards the end of a Company Liquidation process, the primary concern is selling the assets and repaying any creditors and contributors. Once all the assets are sold and the company is closed down, it will be struck off the Companies House register.

Liquidation is typically an option if your business is insolvent and can't pay its bill or debts. When your business is liquidated, any remaining assets are paid to creditors and shareholders. Liquidation can also be a voluntary option.

The company will stop doing business and employing people. The company will not exist once it's been removed ('struck off') from the companies register at Companies House. When you liquidate a company, its assets are used to pay off its debts. Any money left goes to shareholders.

Make a claim to the liquidator

So if a company owes you money and they have entered liquidation you'll need to file a claim with the liquidator, stating the amount you're owed, whether you provided goods or services, and also supporting documentation.

When a company becomes insolvent, meaning that it can no longer meet its financial obligations, it undergoes liquidation. Liquidation is the process of closing a business and distributing its assets to claimants. The sale of assets is used to pay creditors and shareholders in the order of priority.