How Does a Dissolution Company Work?
Dissolution Companies are Dissolution Company is a company which was established to safeguard your assets in the event of an involuntary liquidation (or “dissolution”) of your company. Dissolution Companies are a better option over bankruptcy, which could leave you without any assets. They can help you retain and/or attract new clients. Dissolution companies are typically established in the UK to protect the interests and assets of company owners who are accused of personal bankruptcy. Dissolution Companies can also be formed to safeguard the small-scale businesses that were acquired or merged with shareholders of larger size.
To be qualified for Dissolution Company status, you must meet certain requirements as set forth by the Office of Tax Simplification. For example the company must not have significant direct or indirect stakes in any of its assets used in business. A majority of shares should be held or owned by the public. A majority of directors must not have engaged in any transaction directly or indirectly, which could affect their ability to discharge their duties.
Another requirement for being a Dissolution Company includes an audit by an outside expert to determine if the company is suitable to liquidate. This test will be performed in accordance with 1985 Companies Act. If the expert determines that the business is in compliance with all the conditions, it will likely be classified as a qualified unincorporated enterprise. The tax implications will differ based on whether the undertaking is a liquidation de facto or a voluntary one.
Directors can decide to remain in office on a voluntary basis. They are able to leave the business at any time, without having to change their ownership control, shares or liabilities. A company cannot choose to carry on certain activities if they are not financially viable. Under the Companies Act, a business is able to be put under receivership if it is deemed not profitable. To cover the shareowners’ liability, the receiver will then sell the assets. The receivership will be successful and the company will be wound down. But, it will not have any taxable consequences.
The receiver may decide to wind up the company, however there are tax implications. The first is the annual allowance that applies to the capital that was paid. This annual allowance represents the excess capital that would have been paid pursuant to the share sale clauses in the Memorandum or Articles of Association. This excess is usually decided and approved by the courts.
One final note: all outstanding shares of a business that stop trading is immediately paid for. Any assets of the business that are that is not paid off goes to its creditors. Once the liability of the shareholder has been paid off and the company ceases to trade the shareholder will be eligible for dividends. This means that shareholders of the company will be able to pay dividends more often when they have cash. The amount of dividends that are received is dependent on how many shares you have. It is typically a fixed amount each year.
A company can be placed into liquidation under bankruptcy even if it is properly registered and advised. But, a business can also be brought into a seizure even after having been registered and advised, but only after it hasn’t been able to pay out its debts or after it is declared bankruptcy. A company is only declared liquidated after it has been declared insolvent and cannot pay its obligations.
To go into liquidation, a company needs to demonstrate to the court that it is not able to pay out its debts. The company may also decide to go into voluntary administration. When it is in voluntary administration, the company agrees to make payments to creditors. Bankruptcy is not something to be taken lightly. It is crucial that businesses think carefully before entering administration.