MVL vs Company Dissolution: Why Solvent Businesses Should Consider Liquidation Instead

MVL vs company dissolution are two of the popular choices when companies close down business. Whenever a company decides to shut down business, it opens two options for managing its assets. Depending on the nature of this shut-down, the stakeholders may choose either one of the two options. 

Member’s Voluntary Liquidation or MVL or company dissolution are two of the popular options that are open for such companies. MVL is comparatively more complex than company dissolution, which is why stakeholders consider several factors before making the choice. 

The following article looks at the difference between the two options and the different factors that play a role in their choice. Read on to find out all about the procedures and their role. 

Relevance of MVL vs Company Dissolution

The two options open up for companies depending on the nature of the company shutdown. When the company is solvent or insolvent (in debt) – it reaches a point where it has to think about the assets. 

As already understood, an insolvent company or one that’s in debt, cannot opt for MVL as it does not have the assets to divide. As these companies are in debt and have to be legally terminated, they can opt for company dissolution. 

When it comes to a solvent company, the directors or stakeholders can opt for either MVL vs company dissolution. Being “solvent” here implies that the company reaches its natural life such as the retirement of directors. It may even be when a company or group reorganizes. 

At first glance, dissolution seems like the best option due to the less paperwork, and cheaper and quicker process. However, many solvent businesses with significant profits choose MVL due to the increased benefits. 

The following section will explore the differences between MVL vs company dissolution, explaining why solvent businesses should opt for the former. This is a tax-efficient and secure option! 

What Is Company Dissolution?

Company dissolution, also known as “striking off,” is a process that formally closes the company. It does so by removing it from the Companies House register. The process is straightforward which the stakeholders can handle. 

It also provides the company with a way to meet specific criteria. 

For a company to dissolve, it must:

• be free of outstanding debts and, thus, be solvent. 
• not have any sold or traded stock in the last three months. 
• have not changed its name in the last three months
• Not be facing any legal proceedings or creditor action. 

Once the company fulfills these conditions, the directors can easily apply for company dissolution. This requires them to submit a DS01 form to Companies House. Then, after a brief notice period and no objection from the stakeholders and directors, the company is struck off records. 

What Is a Members’ Voluntary Liquidation?

In MVL vs company dissolution, the MVL is a viable option for solvent companies. A Members’ Voluntary Liquidation formally closes a solvent company and requires a professional. 

An insolvency practitioner is the best person for such cases as they take responsibility for ensuring asset distribution is equal and fair. They also overlook that all legal requirements are met. 

The MVL process involves:

1. Declaration of Solvency: Directors swear a legal statement confirming that the company can pay all its debts in full within 12 months.
2. Shareholder Resolution: At least 75% of shareholders must vote to liquidate the company.
3. Appointment of an Insolvency Practitioner: The practitioner oversees the liquidation, ensuring all creditors are paid and the remaining assets are distributed to shareholders.
4. Tax-Efficient Distribution: Profits are distributed as capital gains, allowing shareholders to benefit from tax relief such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).
5. Formal Closure: Once all assets are distributed and legal obligations are met, the company is formally dissolved.

While MVLs involve more steps and higher upfront costs than dissolution, they offer greater tax advantages for directors and shareholders.

4 Key Differences Between MVL and Company Dissolution

Though MVL and dissolution are ways to close a solvent company, the processes, costs, and outcomes differ significantly. Here’s a closer look at the key differences:

Tax Efficiency

One of the biggest differences between MVL vs company dissolution is the tax benefits on remaining profits.

In a company dissolution, remaining profits are distributed equally amongst stakeholders and 

In a company dissolution, any remaining profits distributed to shareholders are treated as dividends. This means they’re subject to dividend tax rates — currently up to 39.35%, depending on your income tax band.

In an MVL, profits become capital gains instead of income. This means shareholders can benefit from lower Capital Gains Tax (CGT) rates, typically 20%.

More importantly, qualifying shareholders can claim Business Asset Disposal Relief, reducing CGT even further on the first £1 million of lifetime gains.

For companies with significant retained profits, this tax difference can result in substantial savings.

Complex Company Structures

Dissolution is suitable for simple companies with no outstanding liabilities and minimal assets. However, many businesses — especially those with multiple shareholders, complex asset portfolios or intellectual property — require a more structured approach.

An MVL is ideal for companies with:

• Significant cash reserves or retained profits.
• Valuable intellectual property or physical assets.
• Multiple shareholders require equitable distribution of assets.
• Outstanding director’s loan accounts that need to be managed.

In such cases, MVL ensures proper consideration and distribution of assets as per the legal requirements.

Closing Dormant or Holding Companies

Many businesses, particularly in industries like tech and property, create multiple entities for different projects, joint ventures, or investments.

When these companies become dormant or become out of service, an MVL is the formal, tax-efficient way to close shop. Especially if the company holds significant assets. 

Cost Considerations

Dissolution is cheaper upfront. Filing a DS01 form with Companies House costs just £33, and there are no additional professional fees unless you seek legal advice.

An MVL, on the other hand, involves hiring an insolvency practitioner (IP), with typical fees starting around £995, depending on the IP you choose.

However, for companies with significant retained profits, the tax savings from an MVL can far outweigh the initial costs.

Saving tens of thousands in tax through Business Asset Disposal Relief more than compensates for the cost of hiring an insolvency practitioner.

When Should a Solvent Business Choose an MVL Over Dissolution?

While both options are viable, there are clear scenarios where an MVL is the better choice:

You Want to Extract Profits in the Most Tax-Efficient Way

If you’re looking to maximize tax savings, an MVL offers significant advantages over dissolution, especially for companies with large cash reserves.

The Company Has Complex Assets or Multiple Shareholders

An MVL ensures asset distribution is equal and in line with legal requirements. Thereby reducing the risk of disputes among shareholders.

You’re Closing a Dormant or Holding Company with Valuable Assets

For companies with intellectual property, investments, or subsidiaries, an MVL provides a structured, tax-efficient way to wind down operations.

Why Solvent Businesses Should Consider Liquidation Instead of Dissolution

Between MVL vs company dissolution, the latter may seem like the simpler and cheaper option. It often comes with missed opportunities for tax savings, especially when you are a solvent company.

For solvent businesses, particularly those with significant retained profits or complex financial structures, a Members’ Voluntary Liquidation offers a more secure, tax-efficient, and professional way to close down.

By choosing an MVL, directors extract profits in the most tax-efficient way. Ensuring all assets are distributed fairly and legally. While the upfront costs may be higher, the long-term benefits make MVLs the smarter choice for many solvent businesses.

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