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A Guide To Dormant Companies
Not everyone starts a company with the intention of trading straight away
Not all companies registered with Companies House are actively trading. Many form companies with no intention of trading right away, while others take a break from trading. Such companies are known as dormant companies.
I have formed a limited company, do I have to start trading right away?
There is no requirement for a private limited company to start trading immediately after incorporation. It can remain dormant for as long as necessary, but HMRC needs to be informed as soon as you do start trading. When you start trading, you will be legally required to file certain documents, such as your Annual Accounts.
What is a dormant company?
A company can be defined as dormant if it has had no significant transactions during the financial year or since its incorporation.
What reasons are there for having a dormant company?
The main reason people purchase dormant companies is to protect the name – it can prevent competitors from using it or protect it ahead of a future project, brand development for example.
Some business owners may also decide to stop trading for a certain period of time but choose to make the company dormant rather than closing it and having to restart at a later date.
What are the legal aspects of having a dormant company?
Even if your company is dormant, you are still required to keep Companies House up to date on its status and accounts. The following forms will need to be filled in:
- Annual Confirmation Statement filing
- Annual Accounts filing (form AA02)
A dormant company only needs to deliver an abbreviated balance sheet and notes.
A Director Report must be provided to its members.
What transactions are allowed in a dormant company?
- Payment for shares taken by subscribers to the Memorandum and Articles of Association
- Fees paid to the Registrar of Companies to keep the company registered at Companies House, this can include change of name, registration of a company, filing of a Confirmation Statement or payment of penalty for late filing
The company will not be assigned a credit score or limit and there will be very little company information due to the lack of financial data.
My company is dormant, why is it showing as “active” on Companies House?
This is perfectly normal. All it means is that it is not in liquidation, being struck off the register or has any overdue documents due with Companies House.
How do I form a dormant company?
Forming a dormant company is exactly the same as forming a limited company. It is only after incorporation that you will have to notify HMRC that your company is dormant. Around three weeks after your company is formed, HMRC will write to you and you will need to write back and let them know that your company is dormant and will remain so until further notice.
When your company does start trading, you will need to let HMRC know this is the case.