If your business is experiencing financial challenges, you can apply for dormant status, so it is exempted from complying with certain statutory requirements. This option allows you to save money and time since you will not be required to file annual tax returns, appoint auditors, hold annual general meetings, or prepare financial statements.
Here are 6 important things you should know about dormant companies.
1. A Dormant Company Remains Inactive
When the company is dormant, you cannot issue dividends or manage investments. Your business is not compelled by law to prepare audited financial statements. However, the business owners and other stakeholders are expected to continue with their duties and responsibilities.
Your company remains inactive once it has been declared dormant. It will be exempt from holding annual general meetings and preparing financial statements. However, a dormant company is not allowed to conduct any type of trading or receive money. Buying and selling different kinds of goods is not allowed during this period. You cannot lease property or employ workers either.
2. Declare Dormancy Immediately
Any business that does not have accounting transactions for a specific period should pass a resolution to declare dormancy. If you fail to register a dormant company, it continues to incur costs, and it will be required to comply with statutory requirements outlined by the Companies Ordinance. It must officially declare itself dormant once the members pass a special resolution.
The directors authorize this decision, and they state the reasons for inactivity in their application. After passing the resolution, they should notify the Companies Registry within 15 days, and the dormant status becomes active. There is no time limit for business activity, but you need to know that your business will still be obligated to fulfill specific requirements.
3. Protect Company Name
There are several reasons for which you can apply for dormant status like protecting your trademark or brand name. No one can take your company name during the period of inactivity. You can still use it at a later date when you resume operations. When the owner of a business dies or is incapacitated as a result of illness, they can consider this option.
Your business can remain dormant for as long as you want. However, maintaining the name of a limited company on the register comes with certain expenses. Furthermore, dormant companies still have reporting or filing options to fulfill. If your business is not a limited company, its name can be taken by another operator.
4. You can Cease the Dormant Status Anytime
When you feel that your business can resume operations, you should formally dissolve the dormant status and prepare your financial statements. The organization needs to pass a special resolution and declare that it intends to perform accounting transactions.
The directors must apply to the Companies Registry for admission. A financial statement must be prepared for the period when your company ceases to be dominant. When the firm is active, you should observe all the statutory requirements.
5. Certain Businesses Cannot Claim Dormant Status
If a certain company is not private, it cannot apply for dormant status. A financial institution, according to the banking ordinance, or an insurer, as outlined by the insurance companies ordinance, is not eligible for dormant status. In other words, if your company operates in the financial services sector, it cannot go dormant.
You should know the difference between bankruptcy and dormant status, the latter being short-term. When your business is inactive, this is just a temporary measure since you can resume operations whenever you are ready to do so.
6. A Dormant Company does not pay Tax
This company does not pay tax until it becomes active. However, you should make sure that you pay all outstanding tax liabilities if your business was previously trading. There is no need to prepare annual accounts during the period of inactivity.
Once the organization resumes trading, it will be liable for paying tax on any taxable income generated during that period. Be sure to include all the details about your business operations and never falsify anything.
If your business is not operating for a certain period, you can apply for dormant status so that it is exempted from paying tax and other statutory requirements. The main reason for doing so is to protect the name of your company.
When you choose this option, make sure you have a valid reason and that your organization is not generating any money. These tips can help you make an informed decision when you hit hard times.
