Dormant company

What it means

A dormant company is a company that carries on no business, has no sales and no staff, but still exists in the commercial register. It arises, for example, when the owners wound up a project without closing the company, or “parked” it for later.

In law a dormant company remains a full reporting entity and taxpayer. It must keep books, prepare financial statements and file them in the register of financial statements, file a tax return and keep its register details up to date.

Inactivity does not remove costs either. The company pays for its bank account, registered office and possibly the minimum corporate tax where the law imposes it, and old debts can make it the target of enforcement or a bankruptcy petition.

How it works in practice

We advise clients to decide whether they will use the company in the near future. If so, simple bookkeeping with minimal activity and timely filing of the required returns is enough. If not, it is cheaper to close the company by liquidation or another lawful route.

The electronic mailbox still matters for a dormant company. Authorities deliver to companies with no activity too, and an unread mailbox can lead to fines for missed filings the owner never knew about.

If the dormant company is registered for VAT, deregistration is worth considering. A VAT payer must file returns even with nil figures, and missing returns are fined even if the company did nothing.

What to watch out for

The most common mistake is believing a company with no activity has no obligations. Unfiled returns and unfiled financial statements lead to fines, and repeated failures can end in the court dissolving the company, with consequences for the director.

The second risk is “buying” a dormant company as a ready-made entity. It may have hidden debts, unmet obligations or a history that makes opening bank accounts difficult. It needs thorough due diligence before purchase, like any other transaction.