It can happen to any size of business in any industry. Some businesses are more at risk of no longer being able to trade than others, especially with a volatile global economy and politics throwing up many surprises.
It’s commonly said that around 30% of new businesses fail within their first year. For those working in business, it can be a very tough time, especially is they are a sole trader, and it is their only source of income.
What’s the Process of Ending a Business?
Depending on the type of business, the process of bringing it to an end is slightly different. For a small business such as a sole trader it is quite a simple process. You will need to make sure that you have paid all of the taxes and submitted accounts up until the time that the business made its last trade.
For a limited company, the process is similar, and if it is being closed down voluntarily it is called dissolving the company. This is a very cost-effective way of closing down a limited company. Once dissolved it will be taken off of the Companies House register. The process of dissolving a limited company is that you must tell HMRC, finalise payroll and complete a P35.
The Impact on Employees
When a business is no longer continues to trade, it can have a devastating impact on the employees. For those who have been working there a long time they may have been offered redundancy pay before the business stopped trading. For those who have only been there for a short time the impact can be much worse.
If they are a sole earner, it may be that they will have problems paying their bills and sometimes even their mortgage. In some extreme cases where the job was particularly specialised, they may struggle to find other work. This can lead to them becoming bankrupt and filing for voluntary redundancy. For more information on what you can do when you are facing bankruptcy take a look at https://whlawoffices.com/practice-areas/chapter-7-13-bankruptcy/.
Closing a Company with Debt
If the company that you are closing down has debt, then it is a more complicated and involved process compared to dissolving a company. When a company is struggling and in danger of being closed down it is called insolvency. A company is insolvent when it is unable to pay debts that it owes to suppliers or institutions like HMRC for tax.
When a company is insolvent, the directors of the company have three main options that they can take to try and resolve the issue.
The first is to speak to all of the creditors to which the company owes money and renegotiate terms or even ask for the debt to be written off. Another option is to enter the company into a voluntary arrangement. Finally, if neither of these are an option then the directors can put the company into administration. Putting a company into administration will allow the company to carry on trading and the property to be sold.