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How to close a business – the key steps in closing a small business

Whether you’re closing your business to try something new, retiring, or unable to pay due business debts, it’s important that you close your business correctly.

Not all businesses close due to failure.

Whatever the reasons, there are certain steps you need to take when closing your business.

You will also need to consider your business debts and assets and dispose of them correctly.


How to close your business as a sole trader

Debt opens in new window is an important consideration when closing a business you run as a sole trader opens in new window, as you are personally liable for any outstanding debt that needs to be repaid.

If you cease trading without settling your bills, personal assets such as your home may be at risk of being used towards paying back any debt.

If you’re in a partnership opens in new window, each partner is liable for the debt.

If you decide to leave, you must inform your creditors.

For further information regarding partnerships, visit the Business Debtline opens in new window.

The steps to closing a sole trader business depend on whether you can or can’t pay your business bills.


If you can pay your bills

If you want to stop trading or end a partnership and aren’t in debt, you need to go through the following steps:

If you can’t pay your bills

If your business becomes insolvent, as a sole trader you’re liable for any debts.

You can declare bankruptcy opens in new window or seek to implement an Individual Voluntary Arrangement (IVA).

An IVA is an agreement to pay off all your debt or part of it, making payments to an Insolvency Practioner who will divide the payments between your creditors.

You can learn more about IVAs on the opens in new window website and find further information on how to stop being self-employed opens in new window.

How to close your business as a limited company

As with sole traders, the steps involved in closing down a limited company opens in new window also depend on whether you can or can’t pay your bills.

Limited company owners are not typically liable for any debt unless the company becomes insolvent and breaks insolvency laws.

If you can pay your bills

You can close the company in one of two ways:

  • get struck off the Companies Register opens in new window − this is known as ‘dissolving’ the company
  • a Members’ Voluntary Liquidation – you can choose a Members’ Voluntary Liquidation if your business can pay its debts and you either want to retire or don’t want to run the business anymore. This involves making a ‘declaration of solvency’, and you’ll need to review the company’s assets/liabilities before making the declaration.

A declaration of solvency is a statement stating that your company can pay its debts.

To find out more about what is included in the declaration, read the guide opens in new window to liquidating your limited company.

The five main steps of a Member’s Voluntary Liquidation opens in new window include:

  • signing the declaration form by the majority of directors in front of a solicitor opens in new window or notary public
  • holding a general meeting with shareholders no more than five weeks later and passing a resolution for voluntary winding up
  • appointing an authorised insolvency practitioner as a liquidator, who will take charge of winding down the company
  • advertising the resolution in The Gazette within 14 days
  • sending the signed declaration to Companies House within 15 days of passing the resolution.

If you can’t pay your bills

If your business cannot pay its bills, you may have several options for closing, including:

  • put your company into administration − this can mean your business doesn’t need to pay all its debt. You’ll be protected from legal action by people who are owed money. You can find more details on administration on the opens in new windowsite
  • arrange a Creditors’ Voluntary Liquidation – 75% of the company’s shareholders must agree to wind up the company and pass a ‘winding-up resolution’. You will then need to appoint an authorised insolvency practitioner as liquidator and send the resolution to Companies House within 15 days, and then advertise the resolution in The Gazette within 14 days. More information can be found on the site opens in new window
  • compulsory liquidation − your business may be forced into compulsory liquidation opens in new window. Anyone your business owes money to (creditors) can apply to the court to get their debts paid.

Help with debts

Closing your business isn’t always the only option.

If you’re worried about keeping on top of debt and feel like closing your business is the only way to sort it out, there are various ways to get help to tackle the problem.

Our cash flow forecast template opens in new window may help you estimate cash flow to better manage the money coming in and out of the business.

Keeping on top of cash flow opens in new window can help avoid debt piling up.

If you’re a sole trader, read our guide to sole trader debt management opens in new window.

You can also get in touch with Business Debtline opens in new window for advice on managing your business debt.


Learn with Start Up Loans 

Want to learn how to manage your start-up’s finances? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free  Learn with Start Up Loans courses opens in new window include:

Plus free courses on finance and accounting, project management, and leadership.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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