Members Voluntary Liquidation (MVL)
If you are planning to close down your solvent limited company then depending upon how much cash there is left, using a Members’ Voluntary Liquidation (MVL) could be the most tax-efficient way and save you thousands of pounds
By using an MVL, then subject to your future plans, the funds to be distributed are subject to lower rates of taxation (Capital Gains Tax, rather than Income Tax)
If you qualify for Entrepreneur’s Relief (ER), you can benefit from a 10% marginal rate on distributions
This means there can be considerable tax savings for you personally
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What is an MVL?
An MVL is a formal process whereby the company’s shareholders willingly decide to wind up a business in order to distribute assets between the members.
When is an MVL appropriate?
- The company has sufficient assets to repay all of its creditors, if any
- The owner wishes to retire
- The owner wishes to step down from a family business and nobody else wishes to take over
- The owner no longer wishes to run the business
- Due to IR35 legislation the owner is no longer able to contract and operate a limited company (PSC)
- Shareholders wish to realise their interest in an owner managed business
If you are unsure what situation your business is in, don’t worry! Call our confidential expert advisers on 0800 611 8888
What our customers say
I’d just like to thank both you and Tom for your help with the closure of my company. You have been highly efficient and very professional throughout. Thank you.
Umbrella guided me as sole Director of my small limited company, and the shareholders, through every step of a Members Voluntary Liquidation in a very efficient manner. The steps required were clearly laid out and proactively managed by their licensed practitioner. From first meeting through to an interim distribution of funds to shareholders took only a few days in our case. Thereafter, Umbrella will be managing all of the downstream actions required to complete the process with HMRC and Companies House, through to the final discharge of the company.
Process for Members’ Voluntary Liquidation
As we would be instructed by the company only and not instructed to give advice to the directors as to their own personal circumstances, then the directors should ensure that they have taken the appropriate tax advice from their tax advisers.
Umbrella are instructed by the company to assist the directors in convening the relevant meetings to place the company into MVL and for Umbrella’s IP to be appointed as liquidator.
A Board Meeting for the company is held and resolves that either a meeting of the company’s shareholders be convened to pass a resolution voluntarily winding up the company, or a written resolution be circulated to members to pass a to wind-up the Company.
Declaration of Solvency
The Declaration of Solvency is essentially the final balance sheet of the company but also having regard to any possible contingent liabilities and actual value of assets. This will need to be sworn by the majority of the directors.
The Declaration of Solvency should demonstrate that the company has or will pay all its debts in full, plus statutory interest of 8% within the twelve months following the commencement of the Liquidation. If the company is unable to discharge its obligations within this period then the Liquidator is obliged to take the necessary steps to convert the Members’ Voluntary Liquidation (solvent) into a Creditors’ Voluntary Liquidation (insolvent). The Declaration can be made at any time during the five weeks prior to the passing of the resolution to wind-up the company.
At the Members’ meeting, resolutions are passed to place the company into Liquidation and the appointment of a Licensed Insolvency Practitioner as Liquidator. Once these resolutions are passed the company is formally in Liquidation, the directors’ powers cease (although their obligations to the company do not) and the Liquidator takes control.
Or Written Resolution
A written resolution is circularised to members to place the company into Liquidation and the appointment of a Licensed Insolvency Practitioner as Liquidator. Once these resolutions are passed by 75% of shareholders the company is formally in Liquidation, the directors’ powers cease (although their obligations to the company do not) and the Liquidator takes control.
Once the Liquidation appointment has been made
- Notify all relevant parties about the liquidation appointment
- Liaise with the company’s accountant to ensure that all pre-liquidation tax returns are filed with HM Revenue and Customs (HMRC)
- Settle creditor claims
- Obtain tax clearance from HMRC
- Distribute surplus funds to the shareholders
- Prepare all statutory reports and take steps to close down the liquidation in a timely fashion