Common misconceptions with dormant companies: what is a dormant company? A fully dormant company is one that has no accounting history whatsoever. If a limited company does not trade throughout a filing year, then it will be dormant for that year. In many instances, people register companies with the sole intent of leaving them dormant. They can do this simply by not participating in any trading activity from the date of registration. If you plan to register a private company and leaving it dormant, then you will still need to inform HMRC of this.
Benefits of dormant companies: there are numerous reasons as to why someone may elect to register a private company with the purpose of keeping it dormant. A dormant company registration can offer security benefits when protecting a trademark or brand name. You may have an idea for a business you wish to start in the future. Perhaps you wish to register the limited company to not only secure the name, but to let the company company limited by shares' age so that by the time you do want to begin trading, the limited company has a few years behind it. This is very useful when entering into contracts, as the older a company is, the more prestigious it looks.
In this respect, a dormant company registration can be advantageous over time, as it will incur a very small percentage of mandatory outgoing charges (payments for annual filing and dormant accounts). However, the company is an asset that you can sell for considerable money depending on the age, when you wish to discard of your dormant limited company.
Some flat management companies remain dormant for the purpose of owning the head lease or the freehold of a property, and set up a resident association separately to deal with the expenses that it incurs.
Duration of a dormant company: a company limited by shares can maintain a dormant status indefinitely, though the directors of dormant companies must still file dormant accounts with Companies House.
Dormant company accounts: you will still need to file annual accounts with Companies House. If the details of any of your members change throughout the accounting period, you will still need to state this on the in the annual account. A non-trading company is not a company type, but rather the status of a registered company. Any company in England, Wales, Scotland and North of Ireland can be dormant whether they are limited by shares or a company limited by guarantee. Therefore, the same rules will apply to the company whether it is dormant or not.
Transactions in dormant companies: to be dormant, the private company can have no trading or accounting history, although some transactions are possible with trading companies. For example, a dormant limited company can pay for shares that a subscriber takes, if this is applicable in the memorandum and articles. Any fees that the companylimited by shares pays to the Registrar of Companies to change the company name or for the annual filing, as well as the payment for penalties, would still keep the company in the dormant status.
Making a trading company dormant: it is possible to make a trading company dormant, usually by simply not trading throughout an accounting period and declaring the private company dormant at the end of that year. If you have a limited company and you wish to cease trading, but do not want to dissolve the company, making it dormant is always an alternative. However, one should always seek professional advice before doing this.
Making a company dormant: a company limited by shares is dormant from incorporation until they trade. If you need to register a non-trading company, you simply register the private company and have no trading activity at all. When a limited company trades or has activity through the company account, then the status will be active. You will still be eligible for the filing of the dormant account, annual returns, and informing HMRC that you are dormant so that you do not have to pay any corporate tax.
Non-trading companies and dormant companies: a non-trading company is different to a dormant company. Non-trading refers to the status of a limited company which is not doing any business, but has a trading history and accounting transactions, which means that in the legal sense, it is not dormant.
Managing a dormant company: the officers of a dormant company are responsible for filing the statutory paperwork and filing the correct accounts. All limited companies must have a minimum of one physical director and a registered office address, except for public limited companies, which need to have a minimum of two directors and a specially qualified secretary.
Submitting documents to Companies House: the company members are responsible for submitting the mandatory company information with Companies House as and when it is due. Failure to comply could lead to severe consequences, including fines and prosecution as it is a criminal offence. If your company officers do not meet the deadline and file the information late, they will have to pay fines as a civil penalty.
It is important to be prompt with the annual filing because the Registrar may assume that the company is no longer operational and may decide to strike it from the register completely. When the Registrar strikes a company from the register it will become the property of the Crown and will no longer exist.
Winding up or dissolving a dormant company: in the event that you no longer wish to keep your non-trading company, you can choose to strike it off the register completely. If the company has been dormant since incorporation (thus incurring no debts or liabilities) you can apply for voluntary striking-off and dissolution, and this means you will not have to go through the usual insolvency proceedings. You may opt to make the company go through voluntary liquidation if it has prior affairs that it needs to wind up.
You will need to provide Companies House with up to date, accurate details regarding your company, and it should be available for public viewing. Dormant companies are not exempt from submitting their information to Companies House. Companies House must know how to contact the company (the official registered office address where the company holds the records), the details of the members including shareholders. They must have a copy of the memorandum and articles of association, the accounting reference date, and all financial information regarding the company's annual accounts.
Dormant companies with no trading history: dormant companies must file annual dormant accounts, which they can do electronically at Companies House. A company can become dormant by not trading throughout the current financial year, even if they have previous transactions in earlier accounting periods. You will not be able to file the form DCA if this is the case.
Trading fraudulently under a dormant company: there is a common misconception that directors can use dormant companies to conduct business without paying taxes. In many examples, people register a company with the intent of leaving it dormant, and then conduct business overseas through the dormant company but clearing the money in their own country, separate from the company activity. This is the incorrect way to utilise a dormant company and in most instances, it is illegal.
In all instances, you should consult a tax expert before endeavouring to minimise your tax by trading in different countries. Sometimes, people unwittingly commit tax fraud by believing that they are trading correctly and lawfully. Legally minimising the amount of tax you pay through trading is a vast and complicated issue. If you do this incorrectly, you can face severe fines, disqualification, and in extreme cases, imprisonment.
If you would like to talk with a qualified advisor on the subject, please contact Coddan Formations Agency today, and book a consultation. We can help construct a legal tax plan that legally enables you to minimise the amount of tax you pay while maximising your optimum profit.
It is not worth taking the risk of building your own company structure for trading offshore if you have no knowledge or experience regarding the subject. Many people follow their own uneducated initiative and believe that they can utilise the tax benefits overseas, but do not know the full extent of their liabilities. Dormant companies are not simply an easy option of maintaining a UK presence while trading elsewhere without paying the correct tax. While there are many benefits to dormant companies and ways in which they can minimise tax in addition to other company structures, you must be sure that you are following legal procedure.
Given that dormant companies can prove to be exceptionally useful for a variety of reasons, it's important that setting-up mistakes are avoided. Coddan Formations Agency offer a very competitive package for dormant company registration that will ensure that correct procedure is followed. We will register your business with the HMRC as dormant, we'll file your annual accounts to Companies House on your behalf.