There are many reasons for a business ceasing to trade, but in a company this has to be dealt with according to the rules. In this final chapter the various reasons are discussed in some detail and include:

Ceasing To Trade

There may be circumstances where you wish to close down your company and trade no more. Your business may be becoming unprofitable or overtaken by modern technology. You may wish to sell the shares or the assets to a competitor or just to a younger person. You may not be able to pay your debts or you may wish to retire. The fact is that whether a company is a success or a failure it is up to you what you do with it if you hold the power in the shares you own.

When the company is sold the shares pass to another shareholder who takes on all the responsibilities you once held. On the other hand if you clear the company of its assets and retain your shareholding you may wish to end its existence. If the company cannot pay its way the law gives you no alternative but to do something with the company.

This act of extinguishing the life of a company is known as liquidation and the process may be either voluntary or compulsory. The difference is explained in some detail later in the chapter.

Disposing Of Your Business

It is, of course, possible to dispose of your company at any time. You may have found a suitable buyer, or another company who wants to take you over. You may wish to retire and sell your interest or you may want to pack up and go. Whatever the reason the disposal must be orderly and some statutory procedures have to be followed.

When you are selling a business you must establish whether you are selling the shares in your company or only the assets. A potential buyer may want to take your company lock, stock and barrel and either purchase the shares or use an existing company to buy the shares, in which case the company would be wholly owned by another company and become a subsidiary of it.

Case Study: Usha Is Pregnant

Usha is expecting her first child and, after long discussion with her husband, decides that she must shortly stop working. This is a blow to Hannah, who is really a ‘career girl’, and the partners have to decide what to do. They could close the business down but that would waste the time and effort they have put in. They compromise and Hannah agrees to raise the money to buy Usha out of the business. The shares will have to be valued and Usha agrees to employ a separate accountant to negotiate the deal on her behalf. The company will remain in existence and Hannah will eventually become the sole owner of the shares and the business.

Selling The Assets

It could well be more advantageous for a buyer to take only the assets you own and incorporate them into an existing business. This may or may not include the goodwill (which can usefully be described as the ability to make a profit). You would be left with the company liabilities to pay and the money paid for the assets you sell. On the other hand you may sell the whole business, including goodwill, for a given price and finish up with a company which contains only cash. Whichever way the sale goes you will have achieved your goal of selling and be left with the money in your company.

The next problem is to get the money out. It could be used to invest in another business run through the same company. However, if you wish to remove the money from the company inevitably the taxman is hovering around to take a share of the spoils. Tax is normally only payable if you realise the gain and take it away. You can also obtain some relief from inheritance tax if you give away business assets.