Dormant Accounts – Dormant Companies

This guide will help you to manage a dormant company so that you send Companies House everything that is needed to keep the company on the register. It will help you to understand the simple yet important legal obligations that still apply to a company even when it is dormant.

Dormant Company

The term ‘dormant’ applies to a company that, in legal terms, has ‘no significant accounting transactions’ during a financial year. It is not the same as a ‘non-trading company’, a term that has no legal meaning. No significant accounting transactions means no entries in the company’s accounting records. The amount paid for shares when the company is first formed and a few costs that the company may incur in order to keep the company registered at Companies House do not count as significant accounting transactions.

Difference between a Non-trading company and a Dormant company

A company can be non-trading in the sense that it isn’t doing business. But it may still have other accounting transactions going through its books, which means that it is not dormant in a legal sense. A dormant company must not have any accounting transactions except specific allowable transactions that can be disregarded.

Why have a UK dormant company

Companies can be dormant for various reasons, often to protect a company name, in readiness for a future project, or to hold an asset or intellectual property.

Some flat management companies whose main purpose is to own the head lease or the freehold of a property choose to become dormant by setting up a Residents’ Association to deal with any expenses.

A company can remain dormant for as long as necessary. However, while the company is dormant, various other documents and annual company balance sheets must still be prepared and filed at Companies House.

Who runs a UK dormant company

If it is to remain dormant, a company cannot have paid employees because their wages would have to be recorded in the accounting records. However, all companies, including those that are dormant, must have:

  • At least one director for a private company

Responsibilities the officers of a dormant company have

The responsibilities of a dormant company’s officers are the same as for those of a trading company.

The directors and secretary manage the company on behalf of the shareholders or members. Among other things, they are responsible for holding meetings and ensuring that all the necessary returns, accounts and other documents reach Companies House by the due date.

Dormant Companies and Companies House

Although a company may be dormant, Companies House must still keep up-to-date information about it on record and make this available to anyone who wants to know about the company. They need to know:

  • Where to contact the company – the registered office
  • Who runs the company – particulars about the company officers
  • Who owns shares in the company – the shareholders
  • Where certain company registers are kept
  • What the company’s financial year-end is – also known as its accounting reference date
  • What the company’s assets and liabilities are – its annual balance sheet
  • What rules govern the company – its memorandum and articles of association

Most of this information is registered at Companies House when the company is incorporated and, if anything changes, you will need to tell them.

An Annual Return must be completed and returned to Companies House and every year, the company must prepare a balance sheet and send that to Companies House.

Documents delivered to Companies House

Failure to deliver documents may lead to the officers being prosecuted. Parliament imposes strict deadlines and the directors are personally responsible for ensuring that the filed documents are on time. There are an automatic civil penalties for late filing of accounts.

Companies House could also reasonably assume that if documents are not filed the company is no longer required and can strike it from the register.

Companies Dormant since Incorporation

By definition, these companies can only have entered into the following financial transactions:

  • the issue of shares to subscribers who agreed to take such shares under the memorandum
  • fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and
  • late filing penalties imposed by the Registrar of Companies.

Company no longer required

If you decide that you do not need your dormant company, you can arrange to have it struck off the register. There are two ways of doing this:

  • The company has no debts or other liabilities, you may be able to apply for voluntary striking-off and dissolution without going through formal insolvency proceedings; or
  • The company has affairs to wind up, then the company can be put into voluntary liquidation

Exemption from Audit

Dormant companies that are eligible and wish to take advantage of it can claim exemption from audit.

  • Private companies that are dormant need only prepare and deliver to Companies House an abbreviated balance sheet and notes. A profit and loss account and directors’ report do not have to be included in dormant company accounts filed at Companies House; but a directors’ report and possibly a profit and loss account – if the company traded in the previous financial year – must be provided to members.
  • Public companies that are dormant must prepare and deliver to Companies House a balance sheet and notes, directors’ report and possibly a profit-and-loss account, if the company has traded in the previous financial year.

Provided the accounts are prepared so that they comply with the requirements, they do not have to be drawn up by a professional accountant. However, if you are in any doubt about how to prepare a set of accounts, we will be able to advise you.

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