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Frequently asked questions.

As Founders of multiple startups, we've been in the trenches, navigated the maze of legalities, and felt the weight of tough decisions on our shoulders. We understand that behind every startup is a dream, countless hours of hard work, and a team that becomes like family.

That's why we built UNWIND - to ensure founders have a supportive and trusted partner to lean on when things don't work as planned. 

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All this content has been re-checked and updated for Spring 2024. 

What does winding down a company mean?

Closing down your company is a big step. It means you're officially ending your business's journey, wrapping things up clearly and legally. Here's what it involves, in simpler terms:

 

  • Paying Off Debts: Making sure anyone your company owes money to gets paid.

  • Selling What’s Left: If your company has assets like office equipment or inventory, you'll sell them. The money from this can go toward any outstanding debts; if there's anything left, it can be shared among the shareholders.

  • Letting People Know: It's essential to communicate with everyone involved in your business, including your team, customers, suppliers, investors and anyone else who should know about the company's closing.

  • Final Paperwork: Some legal steps and paperwork must be completed to ensure everything is wrapped up properly. In the UK, this includes settling any final tax bills and filing the necessary documents with Companies House and HMRC to dissolve your business officially. You might also have to inform the Information Commissioner’s Office (ICO) that you aren’t working with data (in most cases).

 

The process is more straightforward if your company can pay all its debts. You settle debts, distribute leftover money, and complete the legal steps to close down. But when money is tight, and debts outnumber assets, the process involves carefully managing what's available to try and cover those debts as much as possible.

 

Choosing to close your company can come from many sources—maybe it's a personal decision, or perhaps external pressures make it the only viable option. Regardless of the reason, it's a significant move that requires careful thought and handling to ensure everything is done correctly.

 

This journey might feel overwhelming, but remember, it's a step many founders face. It doesn't diminish the hard work you've put into your venture.

What would a startup need to do to wind down?

Winding down your company means you're taking steps to close it down carefully and responsibly. It's like tidying up after a big project; you need to make sure everything is in order before you close the door for the last time. This involves a few important tasks in the UK: 

 

  1. Figuring Out Your Financial Health: First, examine your company's finances. Can you pay off all your bills and debts? This will help you decide the best way to end things. If your company can pay everything it owes, that's great—you're solvent. If not, you're facing insolvency, which means you owe more than you have. Knowing where you stand is crucial to help determine next steps.

  2. Settling Debts and Obligations: Think of this as making sure you're leaving no loose ends. You'll need to pay off any debts and make sure anyone you've done business with is taken care of. This might include paying your employees their final wages and saying goodbye properly. Depending on your financial situation, an Insolvency Practitioner might need to be appointed. 

  3. Saying Your Goodbyes: You'll need to inform everyone about your decision, including your team, customers, suppliers, and anyone else who's been part of your journey. It's tough, but clear communication is key.

  4. Taking Care of the Legal Stuff: To legally close your business, you must follow some official forms and processes. This ensures you're all set with the government and tax authorities, Companies House and HMRC (for UK startups). 

  5. Looking After Yourself and Your Team: Winding down a business is hard. It's more than okay to seek support, whether that's talking to a mentor, finding a supportive community of fellow founders, or even seeking professional help to navigate the emotional rollercoaster.

 

Remember, winding down isn't about giving up. It's about closing one chapter responsibly so you're ready for whatever comes next. You've learned a lot, and this experience will be a valuable part of your journey. And you don't have to do it alone—there are people and resources out there to help you through this.

What are some alternatives to closing down a company?

Deciding to close your startup can feel like you've hit a crossroads with only one way out. But, before you take that path, it's worth pausing and considering a few different routes that might lead to unexpected new destinations for your business. Here's a rundown of those options, each offering an opportunity to give your startup a second wind or realise some value to make things easier.

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Seeking Acquisition Opportunities

Sometimes, another company might see value in what you've built, even if it hasn't turned out exactly as planned. An acquisition could offer a way out that also rewards your hard work.

 

Pivoting the Business Model or Product Offering

What if a slight change in direction is all that's needed? Pivoting could mean tweaking your product, targeting a new market, or overhauling your business model. It's about finding the fit that eluded you the first time around. Some studies show successful startups pivot on average 1-2x before hitting product-market fit. 

 

Downsizing the Team and Reducing Burn

Tough times call for tough decisions. Reducing your team size can be one of the hardest choices you'll make, but it can also extend your runway and give you more time to explore other options. To buy yourself more time, also cut any expenses that are not business-critical. 

 

Seeking Additional Funding or Investment

Securing more funds can be challenging, especially in a tight market. If you believe in your startup's potential, convincing investors to do the same could be the lifeline you need. Consider a flat or even a down round if you are convinced you can turn things around. 

 

Considering Strategic Partnerships or Collaborations

Joining forces with another business can open up new markets, resources, and capabilities. It's about creating win-win situations that benefit both parties.

 

Going Dormant

Going dormant could be a viable option if you're not quite ready to let go but need a break to reassess and strategise. It allows you to pause operations without fully closing down, giving you space to plan your next move.

 

Making the Decision

Choosing the best path forward requires a deep dive into your startup's current situation, market potential, and personal goals as a founder. It's not just about salvaging the business; it's about aligning with your vision of success and sustainability or choosing a graceful exit. Before you decide to turn off the lights, take a moment to explore these alternatives. You might find a road less travelled that leads to your startup's next great adventure.

What are the Different Ways to Wind Down Your Startup?

Closing the book on your startup journey is a big, emotional decision, and knowing how to do it right matters—for you, your team, and your stakeholders. There are a few structured paths you can take, each suited to different situations your startup might be in: voluntary strike-off, Members' Voluntary Liquidation (MVL), and Creditors' Voluntary Liquidation (CVL). Let’s break these down into plain English.

 

What’s a Voluntary Strike-Off?

Imagine you’re tidying up after a journey, paying off any last bills, and making sure everything’s settled. That’s a voluntary strike-off. It’s for pretty much debt-free startups who want a simple, straightforward way to say, "That’s all, folks!" Before you choose this route, your startup shouldn’t have been trading or selling off any assets recently. It’s about leaving things neat and tidy and then asking Companies House to take your company off the register officially.

 

And Members' Voluntary Liquidation (MVL)?

This is an option when your startup can pay its bills, and you want to wrap things up properly. It's like organising a careful packing up of your venture. You hire a professional (called an insolvency practitioner) to convert everything your company owns into cash, settle any outstanding debts, and then share what’s left among the shareholders. It’s a respectful way to conclude your business, ensuring everything is dealt with fairly and squarely.

 

What about Creditors' Voluntary Liquidation (CVL)?

If your startup is in a tough spot and cannot cover its debts, a CVL is a way to handle things responsibly. It means you’re taking a proactive step to deal with the situation rather than waiting for creditors to knock on your door. Like with an MVL, you’ll work with an insolvency practitioner who will help sell off assets to pay back creditors as much as possible. It’s about facing a hard truth with dignity and doing right by those you owe.



Choosing Your Path

Deciding how to wind down your startup is deeply personal and depends on your specific circumstances—financially and ethically. Whether your startup is in a healthy financial state or facing challenges, there’s a way to close things down considerately and thoughtfully. It's not just about ending the journey but about how you choose to conclude this chapter with respect for all involved and an eye toward future beginnings.

Can I Wind Down My Company If It Has Debts?

If you still have outstanding debts after cleaning up all affairs, you can close down your company. This path is trickier than shutting down a solvent company and will require the appointment of an Insolvency Practitioner. Doing things the right way is critical for you and your shareholders. 

 

Addressing Debts Head-On

Avoidance Isn't the Answer: It might be tempting to look for shortcuts, but attempting to sidestep debts can lead to more significant issues down the line, legally and ethically. The key is to address the situation transparently and responsibly.

 

Exploring Your Options

For UK companies facing insolvency (where your liabilities exceed your assets, or you can't meet your financial obligations as they fall due), there are structured paths designed to address this:

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  1. Creditors' Voluntary Liquidation (CVL): This is a formal process initiated by the directors when a company is insolvent. It involves appointing a licensed insolvency practitioner to liquidate the company's assets and distribute the proceeds to creditors. It's a way to ensure that debts are addressed fairly and thoroughly.

  2. Administration: This option can provide some breathing room. A company enters administration under the management of an appointed administrator ( or an insolvency practitioner) who aims to restructure the business to either rescue the company as a going concern, achieve a better result for creditors than would likely be the case if the company were wound up, or sell assets to pay off debts.

  3. Company Voluntary Arrangement (CVA): Though less common for companies planning to wind down, a CVA allows you to pay creditors over a fixed period. If the creditors agree, your company can continue trading. This option might suit those looking to address debts but hoping to revive the business under a new strategy. You will need to appoint an insolvency practitioner to apply for and administer the CVA. 

 

Moving Forward with Integrity

Deciding to wind down your company due to debts is a significant step. By addressing this challenge head-on and through the proper channels, you're taking a responsible path that respects your obligations and looks out for the interests of all parties involved. Remember, it's about finding a resolution that allows you to close this chapter with integrity and look forward to the next stage of your entrepreneurial journey.

How to Make Your Company Dormant in the UK?

At times, taking a step back doesn't mean giving up; it means giving your venture a moment to breathe and yourself space to plan the next big leap. If you're contemplating hitting the pause button rather than turning it off completely, making your company dormant could be the thoughtful break you and your startup need.

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Keeping Everyone in the Loop

Start with clear communication. Let your clients and team know about your decision to pause operations. It's about winding down current activities with care and ensuring all agreements and contracts are concluded respectfully and responsibly.

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The Steps to Going Dormant

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  1. Notify HMRC: First, let HMRC know you're pausing your business activities. You can do this either through their online services, over the phone, or by post. It's a way to keep things official and above board and ensure you're all clear on the tax front.

  2. File Dormant Accounts with Companies House: Even while dormant, your company exists on record, and Companies House needs to know it's in a sleeping state. Filing dormant accounts is straightforward and can be done online or via post. It's your way of saying, "We're on pause, but we're keeping things orderly."

  3. Submit an Annual Confirmation Statement: This annual snapshot keeps your company's details up to date with Companies House. Like your dormant accounts, it can easily be submitted online or through the post. It's a small but significant step that shows that while your business might be dormant, your commitment to staying compliant and ready for what's next isn't.

  4. Watch for Transactions: If your company has any significant financial movements during its dormant period, it's back to business as usual—at least as far as paperwork goes. You'll need to file regular company accounts and tax returns, stepping out of dormancy, at least on paper.

 

Making your company dormant is more than just a procedural pause; it's a space for reflection, recalibration, and preparation for the future. At UNWIND, we understand the value of this time and encourage you to embrace it fully, with the assurance that you're doing right by your business, your team, and yourself.

How Long Does It Take to Close A Company in the uk?

There's no one-size-fits-all answer, but generally, shutting down a UK company can take a few weeks to several months or even a year (in some complex insolvency cases, even years). This timeline can stretch based on several factors:

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  • The size of your company: Bigger teams and operations naturally take longer to wrap up neatly.

  • The complexity of your business: More intricate company structures and operations can add layers to the winding-down process.

  • The winding-down method chosen: From striking off to going through voluntary or compulsory liquidation, each path has its own set of procedures and timeframes.

 

Why Rushing Isn't the Answer

It's natural to want to close chapters quickly amid uncertainty. However, patience and thoroughness are your allies in ensuring a smooth transition. Rushing the process can lead to overlooked obligations or missed steps that might complicate your company's closure.

 

A Guided Approach for UK companies:

  1. Striking Off: For smaller, solvent companies with no debts, striking off can be relatively quick, typically around 3 to 6 months - including settling any debts, notifying relevant parties, and waiting for the official dissolution from Companies House.

  2. Members' Voluntary Liquidation (MVL): This process, suitable for companies looking for a tax-efficient closure, can take 6 to 12 months. It involves liquidating assets and distributing the proceeds to shareholders with the guidance of an insolvency practitioner.

  3. Creditors' Voluntary Liquidation (CVL): For companies unable to pay their debts, a CVL involves a more detailed process to pay back creditors as much as possible. This route generally takes six months to a year, ensuring creditors are treated fairly and the company is responsibly shut down.

 

Embracing the Journey

In this period of transition, remember that patience and thoroughness will serve you far better than speed. This is a time for careful decision-making and ensuring that all loose ends are tied up properly, allowing you to move forward with peace of mind and readiness for what comes next.

What Happens to My Employees If I Wind Down the Company (UK)?

Deciding to wind down your company is tough, and one of the hardest parts is considering the impact on your team — the people who have been with you on this journey. It's natural to worry about what winding down means for them, and it's crucial to handle this transition with as much care, fairness, and transparency as possible. Here's a simple guide on how to navigate this period with your employees' best interests at heart.

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Communicating the Decision

Openness Is Key: The first step is to communicate your decision to wind down clearly and compassionately. It's essential to provide as much notice as possible, allowing your team to prepare for the next chapter in their careers. This conversation can be difficult, but honesty and empathy go a long way in ensuring your employees feel respected and supported.

 

Notice Periods

Legal Requirements: UK law requires you to give employees a notice period before their employment ends, typically ranging from one to 12 weeks, depending on how long they've been with the company. This notice period is not just a legal requirement but a critical time for employees to adjust to the change and seek new opportunities.

 

Severance Pay

A Gesture of Gratitude: While the law specifies minimum severance entitlements, considering a fair severance package that reflects your employees' dedication and contribution can make a significant difference if you can afford it. 

 

Support in Finding New Employment

Going the Extra Mile: Beyond legal obligations, there are additional ways you can support your employees:

  • Reference Letters: Offer personalised reference letters highlighting each employee's skills and contributions.

  • Career Support Services: If possible, provide access to career coaching or job placement services to help your team transition to new roles more smoothly.

  • Informing Your Network: Use your network to help your employees find new opportunities. Sometimes, a simple introduction can open doors.

 

Legal Obligations

It's essential to be aware of your legal responsibilities regarding redundancy and to ensure that the process is handled fairly and transparently. If you wind down with more than 20 employees, for example, you will first be required to follow the collective consultation rules. 

 

The Importance of Empathy

Winding down your company is a time of significant change and stress for everyone involved. Remember, the way you handle this process can leave a lasting impact on your employees. Approach each step with empathy, respect, and a genuine desire to support your team through this transition. It's about more than just fulfilling legal obligations; it's about honouring the journey you've shared and providing your employees with the dignity and respect they deserve as they move forward.

 

Notes for Founders about communicating a possible wind down with your team (Reading)

When Is the Right Time to Start Thinking About Shutting Down My Company?

Realizing it might be time to close the doors of your startup is undoubtedly one of the most challenging moments you'll face as a founder. It's a decision wrapped in complexity, not just about the numbers but about dreams, hard work, and the people who've been part of this journey. If you're pondering when the right time might be to start considering shutting down, here are some guidelines to help you navigate this intricate decision.

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Recognizing the Signs

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Financial Health Check: It's essential to assess your cash flow and financial projections regularly. If your startup consistently struggles to cover its expenses, is nearing a point where it might not be able to meet all financial obligations, your burn is growing faster than your top line, and you can't raise additional capital, it might be time to reflect and consider your next best steps. Closing down your business while you have some cash is always preferable. Don't wait to have zero in the bank to go ahead. 

 

Sustainable Operations: Consider whether your business model and revenue streams are sustainable in the long run. If financial struggles persist after exploring pivots or new markets, it might be prudent to evaluate the viability of continuing operations. Ask yourselves the right questions: Is it worth the risk? What is the opportunity cost for you and your team? What is the best- and worst-case scenario? 

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The Importance of Timing

Getting the timing right is indeed tricky. Waiting too long might risk insolvency, where your company cannot pay its debts, affecting everyone involved more severely. Conversely, deciding too hastily might mean missing out on potential turnaround opportunities.

 

Ensuring a Graceful Wind-Down

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Cash Reserves: If shutting down becomes the most viable option, having enough cash to meet all obligations is crucial. This includes paying off any outstanding debts, ensuring suppliers and any other creditors are settled, and covering the costs associated with the wind-down process itself.

 

Supporting Your Team: Your employees are your most valuable asset, even more so during this delicate time. If feasible, retaining key team members with a small bonus can be incredibly beneficial. They can provide essential support in either transferring the business operations to someone else or in the orderly closure of the company. Not only does this help maintain stability, but it also means you won't be alone in the trenches during this challenging time. 

 

Making the Decision

It's a weighty decision that blends financial pragmatism with emotional intelligence. If you're considering this path, engage in open conversations with your co-founders, investors, advisors, or mentors. Sometimes, an external perspective can provide clarity or even unveil alternatives you hadn't considered.

 

Remember, You're Not Alone

At UNWIND, we understand the weight of this decision and the multitude of factors at play. We're here to offer guidance, support, and a listening ear as you navigate this challenging phase. Whether it's time to close or you're looking for a way through, reaching out for support can make all the difference. 

Is MVL (Members Voluntary Liquidation) My Only Option to Close My Solvent Company?

Closing your company is a decision that comes with many considerations. Even if your company is solvent, it might seem like your only avenue is a Members' Voluntary Liquidation (MVL), but this is not the case. 

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Understanding Your Options

MVL is a popular choice, but not the only one: MVL is indeed a common route for solvent companies to wind down because it allows for a tax-efficient way to distribute assets to shareholders. However, it's not your sole option. The choice largely depends on your company's specific situation, future plans, and financial considerations.

 

Alternative Paths to Consider in the UK:

  1. Dissolution or Striking Off: This is a simpler and more cost-effective method for closing your company than an MVL. If your business has ceased trading, has no outstanding debts, and meets the eligibility criteria, you can apply to Companies House to have your company struck off the register. It's a straightforward process that, however, does not necessarily offer the tax benefits of an MVL.

  2. Going Dormant: If you're not entirely sure about closing your company, or you foresee a possible return to business in the future, consider making your company dormant. This means your company remains registered but is inactive, with no significant transactions. It's a pause rather than a full stop, allowing you to retain the company structure for potential future use.

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Key Considerations:

  • Tax Implications: One of the reasons MVL is favoured for solvent companies is its potential tax benefits, particularly for distributing capital to shareholders tax-efficiently. It's essential to consult with a tax advisor to understand the implications fully and whether or not it applies to your situation. 

  • Future Plans: Consider your long-term vision. Going dormant is a wise choice if you want to revive your business in the future. If you're sure it's time to move on, dissolution or MVL might be more appropriate.

  • Cost and Complexity: While beneficial, an MVL is more complex and typically more costly than striking off due to the involvement of an insolvency practitioner. Weigh the benefits against the costs and complexity to decide the best route for your circumstances.

 

Navigating Your Decision

Deciding how to close your solvent company is a significant step and requires careful thought. It's not just about the legal and financial processes but also about aligning with your entrepreneurial journey and future aspirations. At UNWIND, we're here to help you navigate these decisions with empathy and expertise, ensuring you're informed and supported every step of the way. Remember, your journey as a founder doesn't end with the closure of your company.

The end of one journey marks the beginning of another.
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