A Member Voluntary Liquidation (MVL) is a process for closing down a solvent company. The decision to cease trading can be due to many reasons, such as a company having served its purpose, the business becoming redundant and outdated or the owners just wishing to retire and take the profits.
Member Voluntary Liquidations ensure a distribution of assets will be made to the shareholders in a tax-efficient way for the business.
To set an MVL in motion, 75% of the shareholders are needed to pass the resolution. For the MVL to proceed, the business appoints a licensed insolvency practitioner as liquidator who takes control of the process to provide guidance throughout.
3 Benefits of MVLs
An MVL is one of the most common methods for closing a solvent company. Liquidating a business can be complex but a member voluntary liquidation can make the process much easier and more transparent. An insolvency practitioner will make sure proceedings are carried out in a professional and simple manner. This means that the process will be completed in a cost-effective way with minimal fuss for directors & shareholders.
The alternative method of liquidating is dissolution of the company. This means closing down a limited company by removing its name from the official register. It is aimed for business with little to no assets, which is unlikely to be resurrected in the future. If a company has any outstanding debts, a dissolution of the company may mean the director is personally liable for these debts.
Cost & Time Effective
Entrepreneurs Relief will reduce the tax rate down to 10% – provided the gains are less than £1 million. Business owners who use MVLs can pay a lower rate of capital gains tax by accessing Entrepreneurs Relief. This is a better and cheaper option than the Dividend Taxation Rate which can get as high as 32% for higher rate taxpayers.
The timing of a member voluntary liquidation is in the control of the shareholders. This means that liquidation can be adapted to coincide with the company’s most tax efficient periods of the year. Once legal and official processes have been undertaken, an MVL can be as quick as the business owner wants it to be, with distributions of funds made shortly after the appointment of a liquidator.
Less risk for more reward
For directors and shareholders, using an MVL can give them the freedom to close their business and free up funds. This is particularly useful for those looking to move abroad, retire or just put the funds to better use personally.
There is also a lower risk level for directors and owners. An insolvency practitioner reviews the details and ensures full compliance when confirming the company’s solvency.
All distributions to shareholders are subject to capital gains tax, which is likely to make Member Voluntary Liquidations the best option if there are high levels of retained profits in the company. All distributions are treated as capital rather than income which means shareholders can benefit from advantageous tax rates and reliefs.
Basically, Member Voluntary Liquidation (MVL) is an effective way of ‘shutting up shop’. This is due to the benefits of tax reductions, expert advice and the workload being taken by an insolvency practitioner. It should definitely be a consideration for businesses looking for liquidation options, especially those with retained profits of over £25,000.