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How Long Does a Members Voluntary Liquidation Process Take?

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How Long Does a Members Voluntary Liquidation Process Take?

In some situations, the directors of a solvent limited company may want to close the business. For example, it may be for tax reasons, the company may be part of a larger business and is no longer required, or the directors may simply wish to retire and there is nobody to take over the business. Whatever the reason, the directors can choose to enter a Members’ Voluntary Liquidation process.

Is a Members’ Voluntary Liquidation process right for your company?

A solvent company enters into an MVL for a variety of reasons, including:

    • The directors and shareholders want to retire, transferring the assets and monies to them personally and closing the company
    • The company is part of an umbrella business and is no longer required
    • The directors wish to close the company, realise the assets and start a new company
    • The directors and shareholders decide to close the company for tax reasons. The two main tax advantages are Capital Gains Tax (CGT) and the MVL Entrepreneurs Relief, which is now known as Business Asset Disposal Relief.

With CGT, currently the annual exemption is £12,000. Therefore any capital to the point of £12,000 is subject to 0% tax.

For Business Asset Disposal Relief, there is a strict criteria that shareholders must meet in order to qualify for the relief tax:

    • A shareholder must hold a minimum of 5% of the company’s shares
    • A shareholder must hold the position of company director
    • A shareholder must have owned their percentage of shares for at least 12 months
    • The company must have been trading The Members’ Voluntary Liquidation process must be completed within 36 months of the company ceasing to trade

The current lifetime limit for Business Asset Disposal Relief is £10 million.

Another advantage to an MVL is that shareholders can be paid using assets, such as land, bonds or property, rather than cash, either from the company’s reserves or realised assets. This is known as distributions in species.

There are certain criteria to be met in order to enter a Members’ Voluntary Liquidation process. The company’s financial information must be up-to-date in order to prepare the required Declaration of Solvency. All the directors of the company must agree to an MVL and sign the Declaration.

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