Why become a dormant company?
Although many businesses in the UK are constantly trading, some people choose to form or become a dormant company.
A dormant company is a business that has seen no significant economic activity during an accounting period, thus it stops trading; you can read more about dormant associations in our Transmit Start Ups guide. Here are some reasons why you might want to become a dormant company:
Preparation is key if you want your start-up or small business to succeed, thus if you have an idea for a trading company or are working toward starting a business you may want to open a dormant company. This way, whenever you are ready to begin trading you can jump right in, and begin growing your brand, but, in the meantime, you won’t have to worry about filing detailed accounts for your dormant company. Furthermore, you may want to form a dormant company to pit your competitors at the post. Everyone knows the value of a good business idea and even a strong company name. So, why not prevent people from stealing your thunder and incorporate your stellar business today?
A trading break
Many businesses don’t start their lives as dormant companies. Sometimes, an actively trading company may decide they want to take a break, and become dormant. Becoming a dormant company is helpful if you intend to continue trading in future. It simplifies the entire administration process, as you should submit abridged accounting forms to Companies House each year, which is less detailed, and so time-saving. Furthermore, it will also reduce the cost compared to if you remained a limited company, as dormant companies are not tax liable. Becoming dormant is also not as much hassle as dissolving your business – especially if there is a chance that you are likely to incorporate a similar business in future.
Some businesses may look to become dormant, for a period, if they hit any significant hurdles during their lifetime. For example, if the owner or director of the company falls ill or dies, a business may become temporarily dormant in order to assess the situation, and appoint new company officers. A company may also undergo a restructuring, and – as a result – no trading will be taking place, thus becoming dormant is a cheaper and more sensible solution. Furthermore, if a business is winding up then it may also choose to become dormant until its end to tie up any loose ends.
Finally, some people choose to register a dormant company so that they can hold a particular asset. For example, in the housing industry, one company – a dormant company – may hold several flats, while a larger, umbrella company handles the leasing. Thus, the holding company remains dormant, as it does not partake in any significant economic activity.
For further information on start-up loans, or support to set up your business, refer to our start up advice section.