What Is a Dormant Company?-A Complete Overview

Dormant Company

Whether you are a budding entrepreneur or simply someone curious about the company laws in the United Kingdom, it is imperative to have a comprehensive understanding of the dormant companies intricately linked to these laws and fall into a distinct category with distinct legal considerations. A dormant company is a legal entity that remains inactive for a specific period i.e. with no accounting transactions or revenue generation activities. It can be registered as a limited company or a different legal entity. In this blog, you will get to know everything about dormant companies.

How to make an existing company dormant  

To register a new company as dormant, you must follow the same process as you have otherwise followed to form a private limited company (Ltd) or any other legal entity engaged in business activities. However, if you are making your existing company dormant, you need to inform the following entities:

  • Companies House
  • HMRC
  • Your bank
  • Insurance providers

Also, you have to settle all bills and accounts before terminating the existing agreements. Apart from many other things, you must also deregister your VAT within 30 days and close your PAYE.

Making or receiving payments 

A dormant company cannot make a significant accounting transaction but can do the following transactions:

  • Paying fees to the Companies House
  • Paying penalties for late filing of accounts
  • Paying for shares during the time of incorporation of the company
  • Receiving payments from debtors as repayments
  • Receiving non-trading income like bank interest, royalties from intellectual property
  • Receiving capital from shareholders or the owner in the form of a loan or share capital
  • Receiving payments by selling its existing assets like property or equipment

Apart from these, all other transactions will be considered significant and would jeopardise the dormant status.

Reasons why a company became dormant 

A company can become dormant for various reasons. Here are a few of these.
A company can become dormant due to an economic downturn or evolving market conditions. Most entrepreneurs take the strategic decision of changing the status of their company from active to dormant till the market conditions become more favourable.
Securing funds is not an easy task for entrepreneurs about to start their journey in the business world. So, sometimes entrepreneurs start their company as a dormant company and then seek funds by presenting their business ideas to potential investors or lenders. If they get convinced, they activate their business operations.
Holding or managing various assets is a big task, and some companies are formed solely to serve this purpose. These companies are SPVs (Special Purpose Vehicles) or SPEs (Special Purpose Entities).

Apart from the above, a company may also become dormant as a strategy for inheritance planning or to simplify its compliance obligations.

Legal and compliance requirements of a dormant company 

Even the fact that a dormant company does not engage in active trading activities does not imply that there are no legal and compliance requirements that it needs to abide by. Some of these requirements are as follows:

  • Compliance with the Companies Act 2006
  • Maintenance of company records and keeping them updated
  • Preparation and annual submission of accounts to Companies House
  • Filing an annual confirmation statement (Form CS01) to Companies House

Note: if you want to restart your dormant company, inform the HM Revenue and Customs (HMRC) within three months of receiving any income or continuing any business activity. Also, you have to register for the Corporation Tax again.

So, if you are making a plan to register your company as a dormant company or change the status of your active business to dormant, consult an experienced accounting professional before making a move. This is essential as even a dormant company has to fulfil some obligations. Any failure to do the same can result in penalties or potential striking off from the Companies Register. Based in London, CoreAdviz has a team of accountants who can help you in this regard will sincerity and professionalism.