Members’ Voluntary Liquidation
A members’ voluntary liquidation is a procedure used when a company has fulfilled its purpose and is to be closed down in a tax efficient manner.
The directors must swear a Declaration of Solvency embodying a statement of the estimated assets and liabilities of the company; the liabilities are to be paid within 12 months.
The shareholders of the company pass a resolution to wind up the company and appoint a licensed insolvency practitioner as Liquidator.
The Liquidator’s duties include:
- realising the assets
- agreeing and paying creditors’ claims
- making distributions to the shareholders
The shareholders’ distributions are treated as capital rather than income; accordingly they are subject to capital gains tax rather than income tax. In many cases the criteria for entrepreneurs’ relief are met, potentially resulting in a substantial tax saving.