It’s a common misconception that a Licensed Insolvency Practitioner can only help when a company is insolvent.They can also be called upon for advice and assistance with closing a solvent business. If you are ready to exit your business, have you considered that a Members Voluntary Liquidation (MVL) may be a suitable exit strategy for you?
Finding the right exit strategy
There are many potential ways to exit a business, including selling the business, passing the business on to a family member, a management takeover, or even dissolving the company completely. Selling a business can be a complex and lengthy process. In many cases, it can take as long as 2 years to find a suitable buyer, and even then, legal and financial fees must be factored in.
Passing a business on to a family member may seem like an obvious solution to some company owners, however, it can be a complex process. It’s also important to consider whether it is a smart business decision.
A management takeover can be a suitable exit plan, especially if the business can be passed on to an existing management team within the company. If external parties are brought in alongside the existing management team, this can make the process much more complicated.
Even the dissolution of a company can be more complicated than it seems – any irregularities discovered at a later date could leave directors at risks of investigation into their conduct. Seeking advice from a licensed insolvency practitioner can help to ensure that a company is dissolved legally and all creditors are correctly informed.
Is Members Voluntary Liquidation right for you?
MVL is a formal process to wind up a solvent company, i.e. a company that has more assets than they do liabilities, so all debts can be paid off. The MVL process involves company directors and an appointed licensed insolvency practitioner – this process will settle outstanding debts and any legal disputes within 12 months, paying creditors through company profits and/or through the sale of company assets. Once all debts are paid, the remaining profits can be distributed to the members (shareholders) involved.
If you are a company director looking to exit your business and you are confident that your business is no longer needed, or there is nobody lined up to take over as director, then an MVL can be the best exit choice if you have profits of over £25,000.
One of the main advantages of an MVL is that profit distributions of over £25,000 are treated as capital gains rather than income for tax purposes, and will therefore be taxed as such. Should directors also be eligible for Entrepreneurs Relief, then the rate of capital gains tax can reduce down to 10% rather than the normal rate.
It’s also important to consider that as Members Voluntary liquidation is administered by an insolvency practitioner, the risk to directors is considerably reduced.
When should MVL be avoided as an exit strategy?
An MVL is only considered an option for solvent businesses with distributions exceeding £25,000. If a company is insolvent or is at risk of financial issues or other liabilities, Members Voluntary Liquidation should not be considered.
Licensed Insolvency Practitioners for MVL
Are you reaching retirement age and considering your exit strategy? Are you interested in learning more about the pros and cons of MVL for your business? BEACON LIP are licensed insolvency practitioners and can help you extract maximum profit from your business in the most tax efficient way.