There are several reasons why a company may be dormant. This article defines what it means to have a “dormant company” — and the various implications attached to one.
The Definition of a Dormant Company
A dormant company is a company that has ceased trading and does not receive any form of income — including “external income” such as investments. However, the company may still be using the services of a registered office address provider and will remain registered at Companies House. Dormant companies also still need to file annual returns and keep their information up-to-date with Companies House.
What Constitutes Forbidden Trading for a Dormant Company?
Since a dormant company is one without significant accounting transactions, there are certain types of activities that a dormant company should not be practising. They include:
Buying or selling goods and services.
Property purchasing or renting.
Operating payroll.
Paying directors’ salaries.
Issuing shareholders’ dividends.
Managing investments.
Receiving dividend payments.
Earning interest.
Paying bank charges and fees.
A dormant company will immediately lose its inactive trading status if it practises any trading activity. It will subsequently be considered “active” for Corporation Tax purposes.
What Constitutes Permitted Trading for a Dormant Company?
The following transactions are not considered to be “significant accounting transactions” and may be carried out by a dormant company:
Payment of shares by subscribers (the first shareholders who join the company at the time of incorporation).
Admin fees paid to Companies House for processing an annual confirmation statement, changing a company name or re-registration.
Penalty payments to Companies House.
Why Would a Company Be Dormant?
A company may remain dormant for any length of time and for many reasons, including:
To protect a company name to stop another business from registering it.
To restructure an existing business.
To hold assets or intellectual property.
As a temporary measure to cover the death or illness of the business owner.
There is no limit to the length of time a business can remain dormant. However, there are certain expenses associated with maintaining a company on the official register.
What Does Companies House Require from a Dormant Company?
Companies House will request the following from a dormant company: