Shutting down a startup is never an easy decision. The business may no longer be viable, or you may want to move on to a new venture. Either way, the way you close the company affects your personal exposure as a director. This guide explains how shutting down a startup in Australia works, the steps to take in order, and the legal risks founders often miss.
Step 1: Get Advice Before Shutting Down a Startup in Australia
Speak to a commercial lawyer and an accountant before you tell anyone. A lawyer can advise on your closure options, your duties as a director and your contracts. An accountant can check your finances, tax position and cash flow. Early advice often decides whether you can close on your own terms. Our insolvency lawyers can help if you suspect the company is in trouble.
Step 2: Work Out Whether the Company Is Solvent
Your closure options depend on whether the company is solvent. Australian law uses a cash-flow test. A company is insolvent if it cannot pay its debts as and when they fall due. Owing more than you own is not the test, although it can be a warning sign.
The test matters because directors have a duty to prevent insolvent trading. If a company takes on debts while insolvent, the directors can face personal liability, civil penalties and compensation claims. A dividend counts as a debt for this purpose. A safe harbour protects directors who start a plan reasonably likely to give a better outcome, but it generally does not apply if the company is behind on employee entitlements or tax lodgements. Our guide to director liability for company debts explains the rules.
Step 3: Choose How to Close the Company
If the Company Is Solvent
A solvent company has two main options.
Voluntary deregistration is the simplest route. All members must agree, and the company must not be trading. Its assets must be worth under $1,000, and it must have no outstanding liabilities or legal proceedings. You must also pay ASIC’s fees. You apply to ASIC, which publishes a notice. ASIC may deregister the company two months later. See ASIC’s guide to voluntary deregistration.
A members’ voluntary liquidation suits companies with assets or ongoing matters. A majority of directors sign a declaration that the company can pay its debts in full within 12 months. Members then pass a special resolution and appoint a liquidator. ASIC explains how to wind up a solvent company.
If the Company Is Insolvent
An insolvent company cannot use voluntary deregistration. The main options are:
- Creditors’ voluntary liquidation. Members resolve to wind up the company and appoint a liquidator, who sells the assets and pays creditors. ASIC calls this the most common liquidation of an insolvent company.
- Voluntary administration. The directors appoint an administrator to try to save the business or get a better result than liquidation.
- Small business restructuring. This suits companies with total liabilities of up to $1 million. You must pay employee entitlements that are due, and keep tax lodgements up to date.
A creditor can also apply to the court to wind up the company, often after a statutory demand. Our guide to responding to a statutory demand explains your options. ASIC sets out what to do if your company is insolvent.
Step 4: Tell Your Stakeholders
Tell your employees, investors, creditors and customers as soon as you have settled your plan. Review your shareholders agreement for clauses on winding up or distributions. Give investors a clear explanation of what happens to their shares and any remaining cash. Notify creditors promptly, and check each customer contract for notice and refund terms. If a buyer might rescue the business, read our guide to startup exit strategies.
Step 5: Pay Employees What They Are Owed
Employee entitlements come first, and mistakes here create personal risk.
- Notice. Most employees receive between one and four weeks’ notice, or payment in lieu. Employees over 45 with at least two years’ service receive an extra week.
- Leave. You must pay out unused annual leave. In Victoria, employees with at least seven years of continuous service also receive their untaken long service leave.
- Redundancy pay. Employers with fewer than 15 employees generally do not owe it. An exception applies if the employer is bankrupt or in liquidation. Casuals and employees with under 12 months of service also miss out.
- Superannuation. Since 1 July 2026, super must reach each employee’s fund within seven business days of payday.
If the company is insolvent and cannot pay, employees may claim unpaid wages, leave and some redundancy pay through the Fair Entitlements Guarantee. It does not cover super. See the Fair Entitlements Guarantee for details. Our employment law team can help you calculate entitlements.
Step 6: Finalise Tax and Registrations
Follow the ATO’s order. Lodge your final business activity statement (BAS), then finalise your tax returns and super. Cancel your PAYG withholding registration and your GST registration, which you must do within 21 days of stopping business. Cancel your ABN within 28 days after you stop. Cancelling the ABN ends your GST registration, so do it last. The ATO sets out the steps in its guide to closing your business.
Directors can become personally liable for unpaid PAYG withholding, GST and super guarantee charge through a director penalty notice. The ATO can start recovery 21 days after it issues the notice. For amounts you reported on time, you can avoid the penalty by paying, appointing an administrator or restructuring practitioner, or starting a winding up. If you reported the amounts late or never, only full payment removes the penalty. Read the ATO’s explanation of the director penalty regime.
Step 7: Deal With Assets, IP and Data Carefully
Sell or transfer assets such as equipment, software and intellectual property for a fair price, and keep the evidence. Be careful with deals involving founders or their relatives. A liquidator can challenge transactions made below fair value, including payments to directors and related parties, for up to four years in some cases. Disposing of assets to keep them from creditors can also breach the law on creditor-defeating dispositions and illegal phoenix activity.
Keep your financial records for at least seven years after the transactions they cover. Where the Privacy Act applies, destroy or de-identify personal information you no longer need. Once ASIC deregisters the company, any remaining property vests in ASIC.
Step 8: Protect Yourself as a Director
Review any personal guarantees you gave to lenders, landlords or suppliers. Under a guarantee, you can remain liable for the debt even after the company closes. Deregistration also does not remove every risk. The ATO says directors can still owe some debts from before deregistration. Before you cancel insurance, ask whether run-off cover makes sense for claims that arise after closure.
Frequently Asked Questions
How do I shut down a startup company in Australia?
First check whether the company is solvent. A solvent company with no assets or debts can apply to ASIC for voluntary deregistration. Otherwise it can wind up through a liquidator. An insolvent company needs a formal process such as liquidation, administration or small business restructuring.
Can I just deregister my company?
Only if it meets ASIC’s conditions. All members must agree, the company must not trade, its assets must be under $1,000, and it must have no outstanding liabilities or legal proceedings. A company with debts or assets cannot use this route.
What is the difference between solvent and insolvent?
A company is insolvent if it cannot pay its debts as and when they fall due. That is a cash-flow test. A company can own more than it owes and still be insolvent if it lacks the cash to pay bills on time.
Am I personally liable for my startup’s debts if it shuts down?
Not for ordinary company debts. But directors can be personally liable for insolvent trading, unpaid PAYG withholding, GST and super through a director penalty notice, and any personal guarantees they signed.
What happens to employees when a startup closes?
Employees must receive their final pay, notice or payment in lieu, and unused leave. If the company is insolvent and cannot pay, the Fair Entitlements Guarantee can cover some unpaid entitlements. It does not cover superannuation.
How long should I keep company records after shutting down?
Keep financial records for at least seven years after the transactions they cover. ASIC also expects former directors to keep the company’s books for a period after deregistration.
How Allied Legal Can Help
Allied Legal advises founders on closing a company, from choosing the right process to managing employee entitlements, director risk and investor communications. Speak to our team early. Learn more about our insolvency lawyers, or contact us on 03 8691 3111 / hello@alliedlegal.com.au.
This article is provided for general information only and does not constitute legal advice. You should obtain legal advice specific to your circumstances before acting on any information contained in this article.
