A limited company is a common business structure for companies that have grown or where the owner wants to keep personal and business finances separate. It is also a popular choice for businesses with several owners or greater financial commitments. At the same time, a limited company comes with more administrative responsibilities than a sole proprietorship, including bookkeeping, financial statements and statutory corporate formalities. 

"Closing a limited company is a more formal process than closing a sole proprietorship. The main difference is that a limited company is a separate legal entity, which means it must be dissolved through a statutory process before it can be closed," says Kenneth Dahlkvist.

Selling the company, a merger or a dormant company 

There are several ways to close a limited company, depending on the company's situation and future plans.  If the business is still viable, selling the company may be the best option. A new owner takes over the company, allowing the business to continue operating. 

For entrepreneurs who own several companies, a merger may be a suitable solution. This means combining the business activities into one company instead of operating several separate businesses. 

In some cases, the owner may also decide to keep the company dormant for a period of time. This may be appropriate if they want to postpone a final decision, plan to restart the business in the future or need more time to evaluate their options. 

However, a dormant company does not mean that all obligations are put on hold. Even if the business is no longer active, the company must still meet its legal obligations, including bookkeeping, financial reporting, statutory filings and other administrative requirements. As a result, the company continues to generate costs even without active business operations. 

Voluntary liquidation is a common choice 

If the owners decide to permanently end the business, voluntary liquidation is often the most common option. Unlike a sole proprietorship, a limited company cannot simply be closed immediately in the same sense. Instead, it must go through a statutory process that usually takes several months. 

The process begins when the shareholders decide to place the company into voluntary liquidation. A liquidator is then appointed to take over responsibility for the company and manage the winding-up process. The liquidator may be someone within the company or an external professional. 

During the liquidation, business operations come to an end, and the company's financial affairs are settled. Assets are sold, if necessary, debts are paid, and outstanding receivables are collected. At the same time, the company must fulfil all of its obligations towards authorities and other stakeholders. 

Another important step is the public notice to unknown creditors. This gives anyone with claims against the company an opportunity to come forward before the company is dissolved. Only after this notice period has expired and all debts have been settled can the company be removed from the Trade Register. 

"If any assets remain after all debts have been paid, they are distributed among the shareholders according to their ownership interests”, Dalkvist states.

Read also:

• Closing down a sole proprietorship – how the process works
• Choosing a company form – what is the best option for your business?
• Company acquisition