Figures from Companies House show that about 18.5% of companies in Great Britain do not do any business all year. These are classed as Dormant Companies. A dormant company is defined as having no ‘significant accounting transactions’ during a financial year.
Even though a company may have done no business during the year it still needs to submit accounts to Companies House. Doing nothing can lead to your company being automatically dissolved, fines and potential prosecutions. If a company is doing no business then an alternative to dissolving it is to declare it dormant. Dormant companies still need to file annual accounts but these can be much simpler than for a trading company as they just need to contain a profit and loss sheet and a copy of the previous year’s accounts for comparison. Importantly there is no need for a dormant company to have their accounts audited. This makes it a lot cheaper to prepare the accounts than for a company that actually has some cash flow.
There are a number of reasons why people may want to operate a dormant company. Many people set up their limited company when they first get the idea for their business. For a variety of reasons it often takes people a while to actually get the business off the ground and trading. Similarly some people might have an idea for a future project and want to get their company registered so that everything is ready to go once the project comes together. Likewise people will sometimes register a company name in order to stop anyone else from getting it or to protect themselves from copycat companies. The small costs and amount of paperwork involved can be a lot more convenient than a potential court case. In many cases dormant companies are used to hold a piece of intellectual or physical property. If no changes are made to this property then the company will not be trading and it can be maintained in a dormant status.
Whatever the reason for having a dormant company it is important to keep make sure the process is done properly. A declaration has to be sent to Companies House citing sections 480 and 476 of the Companies Act to declare exemption from auditing. As well as this an AA02 form has to be submitted. If you are thinking of making your company dormant and need any help with the process get in touch with us.