When closing your Pty Ltd company, it’s imperative that you follow the correct process to ensure that your company has officially ceased to exist. Without doing so, you will still be obligated to perform regulatory reporting and incur fees on an annual basis. Furthermore, the company will be at risked for exposure to future liabilities that may fall due.
So how should you close your company?
There are three main ways:
If your company can’t pay its debts on time, your lenders or suppliers may seek to put your business into insolvency to collect their debts from you. The process includes an external administration of your business, specifically hiring a liquidator who will ensure that payments are fair to both the company and its creditors. Your insolvent company can then be closed down after liquidating the assets. The cost will vary depending on the size of the company.
Winding Up the Solvent Company
Even when your company’s assets still exceeds its liabilities and the business is still trading, the business owner can decide to close the company down through voluntary liquidation. A liquidator is also appointed to handle the liquidation of the company’s assets. If there are extra assets after paying debts and other financial obligations, the surplus is distributed to the owners and shareholders. The business can then be closed down or sold. This option should only be taken if the company does not meet the requirements for a voluntary deregistration. The cost will also vary depending on the size of the company.
You can choose to deregister the company as long as all the other owners and shareholders agree with it. Aside from everyone’s consent, a lawyer or accountant must also prepare the Members Resolution, a legal document that declares the company:
- Is not carrying on business;
- Has no more than $1,000 in assets;
- Does not owe any outstanding debts;
- Is not a party in any legal proceedings;
- Has paid all mandatory fees and penalties under the Corporations Act 2001; and
- If applicable, has cancelled its Australian Credit Licence (ACL) or Australian Financial Services Licence (AFSL).
Obviously, the company must meet all of the above criteria in order to voluntary deregister the company. This is generally the cheapest option out of the three as the only costs are for the application fee and preparation of Members Resolution.
For further details on closing your company, you can check out the ASIC website.
Important Tasks before Closing a Company
Regardless of the reasons to close the company, there are key responsibilities you need to uphold. Below are some of them.
- Taking care of your employees. While you can talk to them about the situation as soon as possible, it’s required by law to provide them with an official written notice. Most importantly, you need to provide them any entitlements they may have and to finalise their employment before the business closes.
- Informing your suppliers. Notify them of the date that the company won’t need their services so that they can process any final billing to you and seek payments for any outstanding amounts you owe.
- Notifying your customers. Informing them will not just lessen their inconvenience but will also increase the chances of maximising your profit right before the closing of business. Utilise as many communication channels as possible to ensure that most, if not all, of your customers are notified of your closure. These include posting notices on your shop front, website and social media accounts. It’s also a good time to hold an inventory sale to sell off your stock.
- Ending lease agreements. In most cases, you will still need to pay your rent up to the end of your lease term. Thus, you might want to base your closing date to your lease term so you can maximise the use of your costs.
- Selling business assets. Aside from selling off your inventory, you’ll also need to sell other company assets like business vehicles, real estate, office furniture, fittings and fixtures, equipment and machinery, tools, intellectual property and all outstanding stock.
- Paying outstanding liabilities. You’ll want to make sure that your company won’t have any legal obligation once it closes. Besides, it’s a requisite especially when you’re going through voluntary deregistration.
- Paying shareholders. If there are retained profits or excess cash in the business, they can be disbursed to the shareholders based on their stake in the company. The distribution can be adjusted if some shareholders are receiving other company assets.
- Lodging final tax returns and BAS with ATO. It’s important to finalise your tax issues before closing down your business by satisfying your payment obligations. You may also be able to seek refunds if you have credit in your final tax. You’ll also have to lodge your Business Activity Statements to help you finalise your report and payment for other related taxes such as Goods and Services Tax (GST) and Pay As You Go (PAYG) instalments.
- Cancelling other tax registrations. These include PAYG, GST, Australian Business Number, Luxury Car Tax, Cleaner Fuels Grant Scheme and Wine Equalisation Tax, among others.
- Keep business records. You as the company owner or director will still have the obligation to keep these records even after you close the business. These include financial records as well as employee and customer records. The number of years and the specific requirements to keep the records will depend on the industry you’re in and the record to be kept.
You will still need to tie other loose ends when closing your company such as cancelling any local permits/licenses, cancelling your website hosting and domain name, deactivating your social media accounts, closing your bank accounts, and cancelling utility services, among others.
The tasks required to close a company may be as arduous as when you registered it, but in the end, it will give you peace of mind knowing that your business has officially ceased to exist and you no longer have to deal with the responsibilities and obligations.