What is the difference between dissolution and liquidation?

Dissolution and liquidation are different processes for removing a company from the Companies House register. Dissolution is the administrative striking-off of a company, often used by small dormant companies that are no longer needed and have no debts. It is a relatively simple and inexpensive process. Liquidation, on the other hand, is a formal insolvency procedure that involves selling company assets, paying creditors, and investigating director conduct. Liquidation is necessary when the company is insolvent and unable to pay its debts. While dissolution may appear easier, it is not suitable for companies with outstanding liabilities, as creditors can apply to restore the company and pursue claims. Directors attempting to dissolve a company with debts risk accusations of misconduct. In contrast, liquidation provides a structured, legal closure and protection for directors if handled responsibly. Understanding the difference helps directors choose the correct path based on the company’s financial position.