What Is A Dormant Company?

A dormant company is one that that does not engage in accounting transactions, but is still a bona fide company registered at Companies House with limited liability and separate legal personality from its members.

What are accounting transactions?

Companies House does not count the monies paid by shareholders when the company was first established as an "accounting transaction", and nor do they include fees paid for filing documents or penalties for late filing of the company's annual return.

If a company trades and becomes active again, the directors must file full accounts in the normal way.

How do companies become dormant?

Companies can become dormant if they are set up by a business which does not get up and running for a while, or if they are shelf companies incorporated ready for use but stay "on the shelf" until they are purchased.

Why would you want a dormant company?

Sometimes, dormant companies are used protectively. That is to say that they are incorporated with a certain name to prevent someone else from using it. This is a common business practice and is similar to "parking" domain names that are similar to your own.

Businesses may also want to have a dormant company ready and waiting, so that they are ready to proceed with your planned venture as soon as you are able.

What do the directors of a dormant company have to do?

Directors of a dormant company may be absolved from the responsibility to file accounts, but they are still bound to file updates at Companies House when certain things happen.

This includes:

• limited accounting information;
• an annual return;
• details of changes in directorships. Although nothing may be happening in the company, directors may still retire or new people may join; and
• changes in shareholding. Shares in a dormant company may be bought or sold without "awakening" the company.

How does an active company turn dormant?

If you run an active company that you want to set aside for a while, or take a prolonged break, you may wish to mothball it to make it dormant. You need to decide whether you really want to render the company dormant, or whether dissolution of the company is more appropriate in this case.

It's worth taking professional advice to make sure that you do not end up trading inadvertently and triggering the enhanced accounts filing requirements. Your adviser will keep Companies House informed of your intentions.

The worst thing however that a director can do here though is nothing – failure to file any documents at all could cause the Registrar to seek to strike your company off the Companies House register, in which case it would cease to exist and its assets would transfer to the Crown.