Dormant Company: Meaning, Process of Notification, & Re-Activation

This article will tell you what a dormant company is, why it’s useful to turn your company into a dormant one and when, and what the process of returning to business involves.

GET EXPERT ASSISTANCE











    Get 30 minutes of expert counselling. No Spam.No Sharing. 100% confidentiality

    Get Expert Assistance

    Book a 30-minutes Consultation from a Legal and Financial Expert Now.

    Fill up the simple contact form available on this page.

    Our experts will call you to understand your requirements.

    You will receive complete details along with the personalized quotation in your email.

    Table of Contents

    If you’re planning to reserve a company name or hold off on starting a business till you’re ready, becoming a dormant company should be at the top of your mind.
    This article will tell you what a dormant company is, why it’s useful to turn your company into a dormant one and when, and what the process of returning to business involves.
    Dormant companies are a legally well-defined business structure in many countries. We will talk about dormant company structures from the point of view of 4 large economies – the UK, Singapore, India, and the USA.

    Meaning of a Dormant Company

    Dormant companies don’t actively engage in trading or business activities and earn no income.

    The advantages of seeking dormant status for your company are that it fixes your cost of company incorporation and helps in increasing the valuation of your company – the longer it exists, the more its value.

    Dormant companies may exist for the following reasons, in general:

    • To reserve a company name
    • To set up a structure for projects in the future
    • To modify the organization of your company
    • To accommodate for absence of the business owner
    • To serve as a holding structure for assets or intellectual property
    • To serve as an intermediate step before company dissolution

    Before you apply for dormant status, you must inform the appropriate tax authorities in your country of tax residence as well as the government body that registered your company in the first place.

    For Newly Formed Companies

    If you’re a recently-formed company and have not filed any taxes so far, most jurisdictions will allow you to receive dormant status with no fuss.

    You can also register your company with the express purpose of becoming dormant. For this, you just need to inform the national Registrar of Companies after company registration has been completed in the regular manner.

    For Companies that Have Previously Earned Income or Conducted Business

    Existing companies need to ensure that there is no outstanding due to any party – in business or the government. Listed below are the pre-conditions for existing companies to gain dormant status.

    • No lawful inquiries or investigations must be pending
    • No bills, dues, interest, or fees must be left unpaid to any party (supplier, vendor, or partner)
    • No active contract with a separate entity must be running to which the company is a party
    • No income tax, VAT, or GST must be owed by the company
    • Agreements with clients or customers must have been fulfilled and respective accounts closed
    • No employees to be on company rolls and claims of previous employees must have been settled (including CPF, gratuity, and other social security contributions)
    • All bank accounts in the name of the establishment must have been closed
    • No dues must be owed to local authorities, state or central government agencies, including for licenses or permits.

    Dormant Company Pre-Requirements by Country for Existing Companies

    How to Apply for Dormant Company Status: Procedure and Compliances

    UK

    • Send a mail to the regional Corporation Tax office regarding the intended date of dormancy.
    • You will be sent a ‘Notice to deliver company tax return’. Reply to this mail by filing the returns online and pay any unpaid taxes.
    • HMRC to convey the acceptance of your dormant status in about 21 days after your communication.

    Singapore

    • Fulfill IRAS conditions for dormant status over the previous 12-months:
      • No sale/purchase to or from customers, suppliers, or of assets
      • No issuance of dividends to holders of shares
      • No loans outstanding to lenders
    • Fulfill ACRA conditions over the previous 12-month period
      • Assets (consolidated assets for parent company) are worth less than S$500,000
      • Company remained dormant since it was registered
      • Directors to file declaration that company has been dormant for the claimed period
      • No claims received under Section 201A(3) of the Singapore Companies Act
      • No claims received under Section 199 of the Singapore Companies Act
    • All dormant companies must file annual returns except if they qualify for a waiver as below:
      • The Company is not listed
      • The Company is not a subsidiary of a listed company that has gone dormant
      • Company is not listed by assets are worth more than S$500,000
    • All dormant companies must file tax returns with the IRAS, except if they qualify for a waiver as below:
      • Waiver application filed by Director, CS, or Approver, and
      • Form C-S/C has been filed complete in respect of financial statements, revenues, Director fees, assets, etc, till the day dormancy commences
      • De-registration from the GST
      • Undertaking to not start again for a period of 2 years hence
      • Waiver for return exemption renewed yearly.

    India

    • Submit the MSC-1 form along with the applicable fees
    • Approval of 75% of shareholders by value (either via notice to shareholders or by a special Board resolution.
    • Obtain the form MSC-2 from the RoC.
    • Company name appears in the Register of Dormant Companies.
    • The Dormant company shall maintain a minimum of 1 Director for a One Person Company, 2 for a Private Limited Company, and 3 for a Public Limited Company.
    • Dormant company holds one meeting every 6 months with at least 3 months/90 days between each meeting.
    • Chartered Accountant to audit annual returns prepared by the company every year in form MSC-3.
    • The RoC can also declare that a company is dormant if financial statements and returns have not been filed for 2 consecutive accounting periods.
    • Dormant companies need not rotate their auditors.
    • Cash flow statement need not be filed in annual statements
    • There is a limit of 5 years up until which a dormant company can remain on the register of companies. Post this period it’s name will be struck off.

    USA

    • In the US, a corporation can become inactive if it ceases doing business. When you file annual reports and tax returns your inactive (dormant) status will be conveyed to the IRS and the Secretary of State for business in the state, county, or other jurisdiction.
    • The Secretary of State can also declare that a corporation is inactive if the corporation fails to file annual reports or tax returns for 2 consecutive accounting periods.
    • Note that your company can become ‘void’ if it does not file annual reports and taxes.
    • Your company could also become ‘forfeited’ if your registered agent leaves the company and is not replaced.
    • You would have to continue filing annual statements and income tax returns if you wish to continue your inactive status.
    • Some states may levy a minimum amount as taxes on corporations even if they stay inactive. Some charge penalties for being inactive.
    • You would also have to continue paying license or other fees for engaging in a business activity whether you’re active or not.
    • For these reasons it can quickly become expensive to maintain a dormant company in the US.

    Applying for Revival of Dormant Company

    UK

    • If starting business activity for the first time, register for Corporation Tax with the HMRC. This will be considered as intimation that you intend to start business activities again.
    • Existing companies must write to the HMRC within a quarter of year post the accounting year end that your company is now active and liable to tax. Letter to be signed a Director or the Company Secretary along with a declaration/affidavit.
    • Pay Corporation Tax if due. 9 months and 1 day post the end of the financial year is your deadline for this purpose.
    • Prepare and file statutory account statements and tax returns after your accounting year is over. Follow the 9-month deadline for this purpose.
    • File your company tax returns with the HMRC within 12 months after the end of the accounting year.
    • Deadlines for Reporting:
      Your statutory account and returns periods remain the same since you’ve been filing them regularly during your period of dormancy. However, the Corporation Tax period is counted from the day your business becomes active again.

      If you want to have the same dates for both accounts and Corporation Tax:

      • Let your accounting reference date (the period when 12 months have passed since you incorporated/became active again) stay the same with Companies House.
      • File returns for 12 months prior to your accounting reference date with Companies House.
      • Use the returns filed with Companies House for tax returns with HMRC.

    Singapore

    • Write an email to the IRAS telling them that you have restarted business again or have started receiving income. This should be done within 1 month of re-commencement.
    • IRAS Email to be in the following format:
      Subject: Recommencement of Business and Request for Income Tax Return
      Give your company’s name and your UEN Singapore
      State the date the business restarted and the new business activity (if any)
      State the date you started receiving other sources of income (if any)

    India

    • Fill in and submit form MSC-4, pay applicable charges as notified in the latest Companies (Registration Offices & Fees) Rules. This application is to be accompanied by returns as filed in form MSC-3.
    • Following processing by the RoC, you will be given a certification of reactivation in the form MSC-5.
    • Re-allotment and rotation of Directors to be done as per the applicable rules of the Companies Act, 2013. Returns to be filed for this purpose.
    • In case, any statements are found to be untrue, you will be given an opportunity to be heard before the RoC or have proceedings initiated against you as per Section 206 of the Companies Act, 2013.

    USA

    • Pay any franchise taxes left unpaid
    • If your company has been voided or forfeited, you must file a Charter for Renewal & Revival with the State you’ve been incorporated in.
    • Ensure all taxes with the State and the IRS have been paid and settled.
    • Hire your registered agent if dismissed previously.

    Looking for an Expert Guidance?

    Get 30 minutes of free consultation
    with our company formation experts!







      FAQ’s

      Dormant companies are allowed to accept payments for shares by those subscribed to them. They may also pay any fees to the Registrar of Companies or penalties to any local or federal authority.

      Yes, there are. You get stuck with needless expenses on compliance, filing of reports and returns. Directors, in particular, are personally liable for tax or reporting failures. You might need to get your reports audited by a third party in some cases.

      Similarly, dormant companies can act as holding companies for illegal assets. They can also be used to transfer money indirectly to the personal accounts of ultimate beneficiaries as parent companies of failing subsidiaries or child companies in other jurisdictions.

      In the past dormant shell companies in the US have been used to sell penny stocks at low prices. Scamsters then spread rumors in the market that led to a surge in the price of the penny stock. Later these scamsters sold all their shares, departing with a personal profit.

      Similarly, dormant companies can act as holding companies for illegal assets. They can also be used to transfer money indirectly to the personal accounts of ultimate beneficiaries as parent companies of failing subsidiaries or child companies in other jurisdictions.

       

      GET EXPERT ASSISTANCE

      Get 30 minutes of expert counselling. No Spam.No Sharing. 100% confidentiality

      odint Consulting

      Quick Links

      review

      4.8+ Star Reviews

      Our Offices

      Netherlands
      Nieuwezijds Voorburgwal 104 Amsterdam – 1012 SG, The Netherlands

      Phone:+31202441878

      USA
      501 Silverside Rd, Suite 105 Wilmington, DE 19809 USA

      Phone +16503831061

      Our Offices

      India
      WeWork Platina Tower, Sikandarpur, Gurugram Haryana 122002

      Phone: +919643460171

      Canada
      398-2416 Main St Vancouver BC V5T 3E2 CANADA

      Phone +16503831061

      Share on facebook
      Share on twitter
      Share on linkedin

      ©2021 ODINT Consulting LLP