Most people running a business rarely think about how they’ll close that business down. The majority of your efforts will likely be on how to keep the business running – on marketing strategies, keeping your employees on the ball, and how to cut costs and increase profit margins. In certain situations, however, it’s important to be informed on subjects such as how you might wind up your company – let’s take a look at some of the reasons you might need to do so.
What does it mean to wind up a company?
First, a quick look at what winding up a company actually means. Winding up (also known as liquidating) refers to the process of closing down your company. This will entail settling your accounts, including paying any debts off and liquidating assets to distribute as appropriate.
In many cases, you’ll need the assistance of an expert team to come in and make sure that you’re doing everything by the books. There are a number of regulations that govern the process, and you want to make sure that you get things right.
Reasons for winding up a company
Below are a few of the main reasons you might need to wind up your company.
Insolvency
If your business is insolvent (in other words, unable to pay its debts) it might be necessary to wind up the company. This will need to be done according to strict procedures with appropriate oversight, to ensure that the assets are sold off and that the resulting funds are distributed to creditors according to a legal order of priority.
Shareholder decision
Companies don’t just wind up when they’re insolvent; if the shareholders decide that they have met their objectives and that it’s no longer desirable to continue running the business, they may also decide to shut the business down and distribute the assets. Again, this will have to be done in a particular way, complying with the relevant government legislation.
Legal reasons
Even if your company is still solvent, it’s possible that you can be forced to wind up. Often, this will be a result of serious infringements of the law, such as consisting of an ongoing failure to comply with certain serious regulations. In addition to being forced to wind up, it’s likely that those considered legally responsible (typically the directors) will face further repercussions, including being banned from holding directorships for a certain period of time.
No matter why you’re choosing to wind up your company, it’s imperative that you do so in a legally appropriate manner. You will often have specific legal duties to a wide variety of creditors, and it’s important that you respect those duties. In most cases, it will be necessary to seek professional assistance, not only to remain compliant with the relevant regulations and ensure that you get the whole process right but also to find out whether it’s the best option available to you given your company’s specific circumstances.
