How a Dissolution Company Work

How a Dissolution Company Work

How a Dissolution Company Work


A Dissolution Company (or Dissolution) is a business you’ve set up to protect your assets if your business is liquidated involuntarily. Dissolution Companies are more beneficial than bankruptcy which may result in you being without assets. They can help you keep and/or draw new customers. In the UK, the most common reason behind a Dissolution Company’s formation is to protect the interests of a business owner who has been taken into court due to personal bankruptcy. Another reason to dissolve an entity is to protect the assets and business that have been bought by shareholders with larger stakes.

To qualify as to be a Dissolution Company, you must satisfy the requirements set forth by the Office of Tax Simplification. For example the company must not have significant direct or indirect interests in any of its assets used in business. Additionally, a majority of the shares must be owned or owned by the public. Additionally the majority of directors must have not, either directly or indirectly engaged in any transactions that could impact their ability to perform their duties.

An additional requirement for becoming a Dissolution Company is to undergo an audit by an independent consultant to determine whether the company can be liquidated. The audit will be conducted in accordance to the Companies Act 1985. If the consultant confirms that the business is in compliance with the rules, it is likely to be classified as a qualified unincorporated enterprise. Depending on whether it is a voluntary undertaking or liquidation in fact the tax implications may vary.

Directors may decide to remain in office on a voluntary basis. They are able to leave the business at any time, without having to change their control over ownership shares, liabilities or ownership. A company can only decide to carry on with limited operations if they are not financially viable. The Companies Act allows a company to be put into receivership if it is found to be unprofitable. The receiver will sell all the assets of the company to pay the liabilities of the shareholders of the shares. If the receivership succeeds, the business will be wound-up but there will not be tax implications.

There are specific tax consequences when the receiver determines that the business should end. The first is the annual allowance which applies to the capital paid up. This is an annual allowance that is equivalent to the amount of capital that was distributed pursuant to the Share Sale Provisions of the Memorandum. The court will approve this excess according to the findings of an insolvency practitioner.

The last but not least is that any shares that remain unpaid after the company has stopped trading will be paid out in a single installment. Any asset that is not taken care of in this manner will revert to the creditors of the company. After the shareholder has paid off the liability and the company has stopped trading they can claim dividends. This means that dividends may be paid out to shareholders who have more money than the company has. The amount you get in dividends depends on the shares you hold. This amount is usually an annual fixed amount for each fiscal year.

A company can be liquidated even if it has been properly registered and advised. Although a business has been approved and registered but it is still subject to seizure if it cannot pay its obligations. A company is only brought into liquidation when it is deemed incapable of paying out its obligations.

A company can go into liquidation when it proves that it cannot pay off its debts. It is also possible for a company to enter voluntary administration. In voluntary administration, the business agrees to make payments to creditors. Bankruptcy can be an extremely serious issue that should not be taken lightly. It is crucial that businesses think carefully before entering administration.