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WHAT IS DORMANT A COMPANY? UK NON-TRADING COMPANY

Every company is required by law to complete and file annual accounts in a format which is acceptable to Companies House. Even companies that have not traded must still file a balance sheet. There are automatic penalties for the late filing of accounts and directors can be prosecuted. If your company has traded we suggest that you contact us to prepare and file your accounts.

Dormant companies are those which are judged to have had no significant accounting transactions in their financial period. The term no significant transactions generally equates to their being no items which are required to be listed in the company' internal accounting records. There are a few transactions which may take place in an accounting period but which do not represent "accounting entries". These essentially are the amounts which may be received from shareholders as part of the purchase by them of the company's shares, amounts payable to Companies House for the annual return fee, and other fines and penalties which may be incurred in the event of non submittal of ay of the forms required by the Registrar of Companies.
Finding and Using Information on This Page:  What is Dormant a Company? | What is the Difference Between a Non-Trading Company & a Dormant Company? | Why Have a Dormant Company? | Who Runs a Dormant Company? | What Responsibilities do the Officers of a Dormant Company Have? | What Happens if Documents are Not Delivered to Companies House? | What if the Company is No Longer Required? | Dormant Companies and United Kingdom Companies House | What Other Statutory Registers are There? | What is an Annual Return - Form 363s? | What is an Accounting Reference Date (ARD)? | What Annual Accounts are Required? | Who Must Arrange for Accounts to Be Prepared? | What Qualifies a Company as a Small Company? | Companies Dormant Since Incorporation | Companies That Have Become Dormant | 

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The provisions extend qualifying company status to a non-trading company where an individual is an employee or officer, provided that s/he does not have a material interest in the company or in a company that controls it. Similar provisions apply to shares held in the holding company of a non-trading group. 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.

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Dormant Companies & Audit Exemption: 
The statutory instrument also sees the repeal of section 250 Companies Act 1985 requiring a dormant company to pass a special resolution to qualify for exemption from audit. This section is replaced by section 249AA. A dormant company will now qualify automatically, provided 10% of members do not request an audit. If the company is a banking or insurance company or an authorised person for the purposes of the Financial Services Act 1986, the dormant company audit exemption provisions do not apply.

There has been a small amendment to the meaning of "significant accounting transactions" such that a transaction arising from the taking of shares in the company by a subscriber to the memorandum and the payment of the following fees to the registrar are not significant accounting transactions and will not result in the loss of dormant company status: fee for change of name under section 28, fee on re-registration of a company, a penalty under section 242A (failure to deliver accounts) and annual return fee.

Where a company claims to be dormant for a financial year and has acted as agent for any person during that year this fact must be disclosed in the notes to the accounts. It is Important that consideration is given to Communicating the change in the audit threshold to clients so that they can make an informed decision from the options that are available to them. It is not necessarily appropriate to assume that all companies that will qualify for audit exemption will wish to take exemption or that it is beneficial for all these Companies to take exemption.

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WHAT IS DORMANT A COMPANY?

The term "dormant" applies to a UK limited 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.

A dormant company will now qualify automatically, provided 10% of members do not request an audit. If the company is a banking or insurance company or an authorised person for the purposes of the Financial Services Act 1986, the dormant company audit exemption provisions do not apply.

WHAT IS THE DIFFERENCE BETWEEN A NON-TRADING COMPANY ∓ 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 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 - indefinitely if, for example, its purpose it just to prevent the name being used by another company.

However, there are expenses associated with keeping a company on the register. And, while the company is dormant, various other documents and annual company balance sheets must still be prepared and filed at Companies House. The company will have to decide how expenses will be met and who will run the company and be responsible for ensuring that all the legal requirements are met.

WHO RUNS A 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 (two directors for a public company); and a company secretary.

WHAT RESPONSIBILITIES DO 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.

WHAT HAPPENS IF DOCUMENTS ARE NOT DELIVERED TO COMPANIES HOUSE?

The company's officers could be prosecuted because they are personally responsible for ensuring that documents are delivered on time. Failing to do so is a criminal offence. In addition, there will always be an automatic civil penalty for filing accounts late. Companies House could also reasonably assume that the company is no longer required and strike it from the register. If a company is struck off the register, it ceases to exist and its assets become Crown property.

WHAT IF THE COMPANY IS 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: if 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 if the company has affairs to wind up, then the company can be put into "voluntary liquidation".

DORMANT COMPANIES AND UNITED KINGDOM 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. Basically, Companies House needs to know: where to contact the company. The company's official address is known as its "registered office".

Who runs the company? That is, particulars about the company officers. Who owns shares in the company - the shareholders (if the company has them).

Where certain company registers are kept. What the company's financial year-end is. The company's financial year-end is known as its "accounting reference date". What the company's assets and liabilities is - 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 first formed and, if anything changes, you will need to tell Companies House, usually on a special Form. However, every year Companies House will send to the company's registered office a summary of the information held on the public record at Companies House - this Form is called an Annual Return (Form 363s).

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

WHAT IS A REGISTERED OFFICE?

This is the company's official address registered at Companies House. It is also the address where we will usually send letters and reminders. The registered office address can be anywhere in England or Wales (or Scotland if your company is registered there). It is important that all correspondence and notices sent to this address are dealt with promptly. A change of registered office address must be notified to Companies House on Form 287. The new address only becomes the registered office when the form has been registered. All companies must have a registered office address, and the company's name must be displayed outside.

WHO ARE THE COMPANY OFFICERS?

These are the company director(s) and the company secretary. They are responsible for managing the company and for delivering documents to Companies House. Particulars of who they are must be entered in the company's own register of directors and secretaries and notified to Companies House when the company is first formed. Any changes must be recorded in the company's register and notified to Companies House on the correct form within 14 days of the change.

WHO ARE THE COMPANY MEMBERS?

A company member is defined as a person who has agreed to become a member and whose name is entered on the company's register of members. For a limited company with shares, this means a person who owns shares in the company - a shareholder. For a company limited by guarantee, it means a person who has agreed to contribute to the assets of the company if it is wound up.

The company must keep a register of its members. Any member of the company or any other person has a right to inspect the register. Unless it is kept at the registered office, Companies House must be notified of where the register is kept, and any change in its location must be notified to Companies House on Form 353.

If a company has shares, details of the shareholders have to be notified to Companies House. The information must be updated every year on the Annual Return Form 363s, which we will send the company shortly before it becomes due. In addition, if the company has issued debentures, it must keep a register of debenture holders. Any member of the company or any other person has a right to inspect the register. Unless the register is kept at the registered office, Companies House must be notified of where it is kept, and any change in its location must be notified to us on Form 190.

WHAT OTHER STATUTORY REGISTERS ARE THERE?

There are several other statutory registers that may apply to the company. Although there is no obligation to notify Companies House about the location of any other statutory register, the company secretary is responsible for maintaining all the following registers - some of which are mentioned above. If they apply to the company: Accounts (only for limited companies). The register of debenture holders. The register of directors and secretaries. The register of interests in shares (public companies only). The register of directors' interests in shares, or debentures, of the company. The register of members. The register of charges. These registers must be open to inspection by any person on payment of the prescribed fee.

WHAT IS AN ANNUAL RETURN - FORM 363S?

It is a Form that every company - even those that are dormant - must send to Companies House each year. The Annual Return should not be confused with annual accounts - the two are entirely different. The Annual Return must be accurately completed to a particular date known as the "made-up date". This is: 12 months after the date of the made-up date of the previous Annual Return; or in the case of a company's first Annual Return, the anniversary of the date of incorporation. The Annual Return Form and filing fee must reach Companies House within 28 days after its made-up date.

WHAT IS AN ACCOUNTING REFERENCE DATE (ARD)?

The ARD is the financial year-end. It is also the date that determines when accounts are due for delivery to Companies House. When a company is incorporated, its ARD will automatically be set as the last day of that month but this can be changed, if the company wishes to do so. Companies House must be told in advance if the ARD is about to be changed. A change of ARD must be notified on Form 225. Changing the ARD can be complicated because of the effect it has on the related accounts.

WHAT ANNUAL ACCOUNTS ARE REQUIRED?

All limited companies - including dormant companies - must file annual accounts at Companies House. For dormant companies, this means a balance sheet giving details of assets and liabilities and any relevant notes. Annual accounts must usually be delivered to Companies House within 10 months of a company's ARD for a private company, and 7 months for a public company. However, if a company's first accounts cover a period longer that 12 months, the maximum time allowed is 22 months from the date of incorporation (19 months for a public company) or 3 months from the ARD, whichever is longer.

Accounts must be filed even if the company has remained dormant from one year to the next - even if it has never traded - and, if the accounts are late, the company will be penalised. There is no special treatment for dormant companies. Being dormant does not mean that your company does not have to file accounts or file them on time.

WHO MUST ARRANGE FOR ACCOUNTS TO BE PREPARED?

The directors of the company. The accounts must be prepared, laid before the company's members in a general meeting, signed and delivered to Companies House within the time allowed (normally within 10 months of a company's ARD). However, you do not need to lay the accounts before a general meeting of the company, or have them agreed by the Inland Revenue, before sending them to Companies House. The members can pass an 'elective resolution' not to lay the accounts before the members in a general meeting, but the accounts must still be prepared and given to the members and delivered to Companies House.

WHAT QUALIFIES A COMPANY AS A SMALL COMPANY?

As mentioned at question 1 above, in order to take advantage of the audit exemption, the company must be both dormant and qualify as "small". If the company has traded in the past, then in order to qualify as small in a particular financial year it must meet the qualifying conditions in that year and in the preceding financial year. The qualifying conditions are that at least two of the following must be met: the annual turnover must be £2,800,000 or less; the balance sheet total must be £1,400,000 or less. The average number of employees must be 50 or fewer.

WHAT EXEMPTION IS AVAILABLE?

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, an accountant will be able to advise you.

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. Late filing penalties imposed by the Registrar of Companies.

These companies may be able to file their statutory accounts at Companies House by completing Form DCA. But the Form is only suitable where any fees or penalties noted above are paid by a third party without any right of reimbursement. Form DCA can be completed each year for as long as the company remains dormant and meets the above conditions.

COMPANIES THAT HAVE BECOME DORMANT

These companies must be dormant for the current financial year, but will have entered into transactions in earlier periods. These transactions may have resulted in residual balances appearing on the balance sheet in the current year. If so, Form DCA is not suitable as it has no provision for these balances. If there are no residual balances, other than those relating to the issue of subscriber shares, Form DCA may still be suitable. Otherwise, the reporting and disclosure requirements for these companies can be diverse and complex.

WHAT HAPPENS IF MY COMPANY STARTS TRADING AGAIN?

Any company will cease to be exempt from audit as a dormant company if it: begins commercial or trading activities during the financial period; or would no longer qualify for some other reason, for example, if it became an 'authorised person' under the Financial Services Act 1986 or was required to submit group accounts. If either of these happened, full accounts would be required for the financial year in which the company ceased to be exempt, and the directors might need to appoint auditors for the company. It may be that the company would qualify for exemptions as a medium-sized or small company.