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In short, a Members' Voluntary Liquidation (MVL) is the process that enables shareholders’ to appoint what is known as a Liquidator to formally close down a solvent company. Directors of companies wishing to utilise the MVL must make a sworn declaration that the company:
There are a number of reasons why a company might be placed into this form of liquidation. Below are just a couple of reasons:
For shareholders this may be an appropriate exit strategy since they may be able to obtain a tax-efficient release of capital under the entrepreneur’s relief scheme. The distribution as capital, through an MVL may be more beneficial for tax purposes compared to a distribution under income tax. We will delve into the tax benefits of an MVL later.
A Members' Voluntary Liquidation may be used as a way in which to re-organise a group of companies. For example, if a subsidiary company is no longer required or may have become irrelevant. An MVL can enable this company to be shut down.
To begin with, a licensed insolvency practitioner will be appointed as a liquidator for an MVL. Generally, a company must:
Once the above steps have been satisfied, the MVL process is as follows:
There are a number of tax benefits available under MVL. Primarily, the fact that shareholder distributions are treated as capital distributions means that a low rate of tax is incurred as opposed to conventional dividends.
As well as the above, MVL distributions may qualify for Entrepreneurs’ Relief, a government scheme which allows a reduced Capital Gains Tax of 10% on qualifying assets.
For more details on Entrepreneurs Relief - visit our dedicated guide.
Author: Sacha Bright & Oliver Murphy
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. Nextfin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site.
Tagged: entrepreneur tax relief sme business alternative finance
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