A solvent company means the business has enough assets to repay creditors and distribute remaining among the shareholders of the company. Member’s Voluntary Liquidation or MVL process gets initiated by directors. However, it will need a sanction from 75% of shareholders. The wind-up resolution is passed in a meeting with the shareholders and a liquidator is appointed.
For company liquidation Sydney consult the Insolvency Experts to close the solvent company formally. As soon as, the liquidator realizes the assets and ensures your business has not liabilities then capital will be distributed among shareholders, according to their hierarchy.
The decision of MVL is driven by multiple factors. A few can be because of directors and their consultants offering advice that MVL undertaking cost is not high as they assume it to be. In some cases, deregistering a business without going through the MVL process is also an appropriate way to wind up.
Reasons to determine Members’ Voluntary Liquidation
To pay tax-efficient dividends
Winding up a solvent business allows you to extract the tax-efficient capital gains the company earned and pass them to your shareholders. It is a great exit strategy for getting a tax-efficient release on their capital amount under the entrepreneurial relief.
Generational change
Sometimes conflict arises in family business associated with asset distribution to the next generation. The primary company was established with children as shareholders but as they grew older, they don’t share a common vision.
MVL allows tax-efficient split, which helps the next generation to follow their personal vision and expand in different horizons.
Clean up or eliminating the holding costs
After obtaining their main goal corporate entities undertake MVL to save on accounting costs and annual ASIC lodgment fees. Many companies just sit for decades since their last business transaction. It is extreme because the costs pile up against dormant company management, which is a waste of funds as the company is not needed.
Risk management
Many accountants advise their clients to close their company legally via MVL rather than sell it. When a business is bought or purchased there are chances that unexpected liabilities can appear down the track.
For example, there are cases when a dormant company got sold to another customer, it was discovered that the original owners pending claim got materialized years later. This can be a crushing experience for new owners.
In another case, a husband ceases his enterprise and hands it to his wife, who runs a different business. Such risky exposure exists, so it is wise to formally liquidate a company.
Save storage costs of records & books
When the shareholders pass a resolution to liquidate their company and appoint a liquidator. The books and records need to be maintained mandatorily for at least 5 years for taxation purposes. But the liquidator can apply to the ASIC for the early destruction of the records & books. After 6 months from the ASIC deregistration approval date, the records and books can be destroyed. Thus, the significant cost of storing them gets saved.
Before you hire insolvency practitioner, ensure that your company is solvent. The Insolvency Experts help businesses to reduce the workload during the MVL process, thus lessening the overall cost.