What is a Dormant Company?
Basically, a dormant company is one that is not trading. Companies House defines a company as being dormant “where it has had no significant accounting transactions during the relevant accounting period”.
The only accounting transactions allowable for dormant companies are:
- Payment for shares taken by the subscribers to the memorandum of association.
- Certain fees paid to the Registrar of Companies: i.e. for filing of annual returns, re-registration of a company, or change of a company name.
- Payment of a civil penalty for late filing of accounts.
Maintaining a Dormant Company
Much like a trading company, Companies House will still require certain information from dormant companies on an annual basis. Failure to do so will result in a fine or even the company being struck off the register. The following must be submitted each year:
- An annual return, incorporating a balance sheet and including a declaration that the company has been inactive throughout the accounting period.
- Confirmation of any change of details for current officers as well as the addition/removal of any officers.
Setting up in advance: making the right impression
You might have a new trade in mind but not be ready to actually start trading. By forming a dormant company you will be ready to trade at short notice. Setting a company up for this purpose was more important in the past when setting up a company could take several weeks. With the ability to form companies online, a company could be potentially incorporated on the same day.
However, having a company in place gives off the impression that you are organised, forward-thinking, and confident in your budding business.
Protecting your name
As your business grows and gains market recognition it is important to consider protecting its brand. Whilst operating as a sole trader there is nothing stopping someone opening up a limited company of the same name. If this limited company then develops a bad reputation which could lead to confusion and a loss of business.
On the other side of the coin, if your business is just getting off the ground but is not ready to trade as a limited company, setting up a dormant company will protect the name whilst you get everything else in order.
It must be noted that a trademark will be required for total protection.