The fast-paced world of tech startups is all about innovation, rapid growth and agile exits. But when it comes time to close a successful venture, many founders are looking for the most tax-efficient and streamlined way to do it. That’s where a Members’ Voluntary Liquidation (MVL) comes in.
While liquidation might sound like something only struggling companies face, an MVL is a solvent liquidation process designed specifically for financially healthy companies that are ready to close. For tech startups and entrepreneurs, MVLs have become an increasingly popular choice.
This article explores why MVLs are particularly appealing to tech founders and entrepreneurs and how they offer an efficient exit strategy that protects profits and minimises tax liabilities.
What Is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation is a formal process for closing a solvent company. This means the business has no outstanding debts and can pay all its creditors in full, with surplus assets left over to distribute to shareholders.
In an MVL, directors make a declaration of solvency stating the company can settle its debts within 12 months. After this declaration, shareholders vote to liquidate the company. An insolvency practitioner is appointed to handle the process, ensuring assets are distributed efficiently and in compliance with the law.
For many business owners, an MVL is the most tax-efficient way to close a company and extract profits.
Why Are MVLs Popular Among Tech Startups and Entrepreneurs?
Tech entrepreneurs often face unique business cycles. Whether it’s exiting after a successful product launch, winding down a dormant company or cashing out following an acquisition, MVLs offer several advantages that align perfectly with the fast-moving tech landscape.Tax Efficiency through Business Asset Disposal Relief (Formerly Entrepreneurs’ Relief)
One of the biggest reasons MVLs are popular among tech founders is their tax efficiency. When closing a company through an MVL, profits are treated as capital gains rather than income. This means they are taxed at a lower rate.
Most significantly, tech entrepreneurs can often benefit from Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This relief reduces Capital Gains Tax (CGT) on qualifying profits up to £1 million (lifetime limit).
For founders who’ve spent years building their startup, this can result in substantial tax savings compared to withdrawing profits as dividends, which can be taxed at rates of up to 39.35%, depending on your tax band.
Efficient Exit after Acquisitions or Buyouts
Many tech startups aim for acquisition as part of their growth strategy. After an acquisition, founders might find themselves with dormant subsidiaries or holding companies that no longer serve a purpose. An MVL is the ideal way to close these companies in a formal, legal manner while efficiently extracting any remaining funds.
Similarly, if a startup has been involved in a management buyout (MBO) or merger, and the original company structure is no longer needed, an MVL provides a clean exit while ensuring all remaining assets are distributed to shareholders in the most tax-efficient way.
Closing Dormant or Non-Trading Companies
Tech entrepreneurs often create multiple entities for different projects, spin-offs or experiments. Not all of these ventures will continue in the long term. When a company has served its purpose but still holds valuable assets — whether it’s intellectual property, cash reserves or investments — an MVL offers a structured way to wind down and distribute those assets.
Flexibility for Serial Entrepreneurs
Many tech founders don’t stop after one venture. They move on to new ideas, new startups or even entirely different industries. An MVL allows you to efficiently extract profits from a successful startup, providing the capital to fund your next big idea.
Because MVLs are handled by professional insolvency practitioners, the process is streamlined and efficient, allowing founders to focus on their next project without getting bogged down in administrative tasks.
How Does an MVL Work?
The MVL process is straightforward but must be handled by a licensed insolvency practitioner to ensure compliance with legal and tax regulations.
Here’s a step-by-step overview of how an MVL works:
Declaration of Solvency
Directors sign a legal statement confirming the company can pay all its debts within 12 months. This declaration must be sworn in front of a solicitor.
Shareholders’ Resolution
At least 75% of shareholders must vote in favour of the liquidation. This formally starts the MVL process.
Appointment of an Insolvency Practitioner
An insolvency practitioner is appointed to manage the liquidation. They will handle asset distribution, settle any outstanding liabilities and ensure all legal requirements are met.
Asset Distribution
After settling debts, the remaining assets are distributed to shareholders. This is where the tax benefits of Business Asset Disposal Relief come into play.
Final Closure
Once all assets have been distributed and legal obligations met, the company is formally dissolved.
Is an MVL the Right Choice for Your Tech Startup?
While MVLs offer clear benefits for tech founders and entrepreneurs, they’re not the right solution for every situation. An MVL is only available to solvent companies — those that can pay all their debts in full.
If your company is facing financial difficulties or struggling to meet its obligations, a Creditors’ Voluntary Liquidation (CVL) or another insolvency procedure may be more appropriate.
However, if you have surplus profits to distribute or simply want to close a company that’s no longer needed, an MVL can offer significant tax savings and a clean, efficient exit.
Why MVLs Are the Smart Choice for Tech Founders
Whether you’re cashing out after an acquisition, closing a dormant company or preparing for your next big venture, a Members’ Voluntary Liquidation offers a tax-efficient and stress-free way to extract profits and move on.
For tech entrepreneurs who’ve poured their time, energy and creativity into building a company, an MVL ensures you get the most from your hard work — while staying compliant with legal and tax regulations.