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What is a Members’ Voluntary Liquidation?

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What is a Members’ Voluntary Liquidation

If the difficult decision has been reached to wind down your company, the process of liquidation is required to officially become defunct.

During this procedure, the remaining assets of the business are sold off and the proceeds are used to pay creditors. Any remaining stock is then distributed between shareholders.

There are various types of liquidation to consider when ending the company. These depend on the requirements of the directors and creditors, as well as the position the business finds itself in. These liquidation types are:

–          Creditors Voluntary Liquidation (CVL)

–          Members Voluntary Liquidation (MVL)

–          Compulsory Liquidation

What is a Members’ Voluntary Liquidation?

As opposed to a compulsory court liquidation, where a qualified liquidator is appointed to wind down the company on your behalf, a members’ voluntary liquidation offers more control for the directors and shareholders.

You can only choose this way of closing the company if it is classed as solvent and can pay its debts, the opposite of a CVL. The business is considered to be solvent when the value of its assets, i.e. bank account funds, property, equipment, etc., surpasses the sum of all its debts.

Most commonly, the type of business owners who decide on an MVL are usually those who plan to retire (with no one else to take it over), or those who simply have no desire to run the company any longer.

Although the business will have ceased trading, you can still utilise company assets in the form of cash and will be charged Capital Gains tax instead of Income Tax, which itself should work out less costly. Under a 2012 ruling, this ‘capital treatment’ will automatically be applied for distributions under £25,000.

Furthermore, the relieved funds may be subject to an additional Entrepreneurs’ Relief that reduces the tax rate by 10%.

Process of Members’ Voluntary Liquidation

In order to conclude the process of a members’ voluntary liquidation, you are required to follow government regulations to officially wind down the company.

This involves the signing of a ‘Declaration of Solvency’ form to prove your business isn’t in debt. A voluntary resolution must be reached at least five weeks later via a general meeting with the shareholders, whilst an advertisement must also be placed in the Gazette.

After this, you should then appoint an authorised liquidator who will effectively take control of the business and resolve the situation in the fairest manner possible.

For those still confused about what exactly a members’ voluntary liquidation is, you should seek expert advice on how to initiate the process. We  offer liquidation advice to help minimise losses and allow you approach future business endeavours with a clean slate.

To get in touch, feel free to give us a call on 02070996772 or email at info@financialdiscuss.com.

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