What is a dormant limited company?

What is a dormant limited company?

A dormant company is one that doesn’t trade and has no accounting transactions. Small companies may choose to buy a dormant company to protect the name, or for other reasons.

Trading companies may also elect to become dormant if they cease trading and may wish to trade again in the future.

Why would you need a dormant company?

There are several reasons why small business people may use a dormant company.

1. Protection – You may have a trademark or brand name you wish to protect. Securing a dormant company of “brand name limited” will prevent competitors from using the same brand name for unscrupulous reasons.

2. Future Proofing – You may not yet be ready to push ahead with a new project. By securing a dormant company, you can help prepare in advance for the future.

How long can a company remain dormant?

There is no time limit for keeping a company in a dormant status. However, the directors of dormant companies must still perform some administrative duties each year, as explained below:

Administration of a dormant company

• Even though your company may be dormant, you are still liable to complete an Annual Return to Companies House (costs £15 if you file online, or £30 if you file a paper return).
• All dormant companies, even those who have not traded, must file annual accounts at Companies House. This will mean a balance sheet and relevant notes for dormant companies.
• For Companies which have never traded, they can file their annual accounts via Form DCA (PDF). Companies who traded in the past, but have become dormant may be able to use Form DCA, but only if no transactions have been recorded in the current financial year and no residual balances exist.
• During this time, the company must not generate any transactions at all, otherwise you will have to submit full accounts to Companies House, and meet any liabilities these transactions may create.
• If you decide to appoint a Company Secretary, Director, or any of their details change which the company is dormant, you must notify Companies House via forms 288a, 288b or 288c.
• Even a dormant limited company must have a registered address. Any change of registered address must be sent to Companies House via Form 287. (PDF)

What transactions are allowed?

Dormant companies may only have a few specific allowable transactions, but no accounting transactions.

The only allowed transactions of a dormant company are:

• payment for shares taken by subscribers to the memorandum of association;
• fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and
• payment of a civil penalty for late filing of accounts.

Already running a company – why make it dormant?

Many small business people set up limited companies, and for various reasons, they may not be ready to trade, or would like to take a break for a while. By making the company dormant, you can always continue the business at a later date, and you won’t need to go through the administrative process of closing down your limited company. Your accountant will advise you on how to make your trading company dormant.

Penalties for non-submission of documents to Companies House

Directors can be prosecuted if they don’t submit documents to Companies House on time. In fact, failure to do so is a criminal offence. There is also an automatic civil penalty for late submission of annual accounts. In severe cases, a dormant company could even be struck off the register.

How do I buy a dormant company?

Our Company Formation partner, Duport, offers a company name reservation service for just £65 per year - you can find out more here.

Further Guidance

Unsurprisingly, the most comprehensive guide to Dormant Companies can be found on the Companies House website – GBA10.