What is a dormant company?

Running a business is a colossal, gargantuan task, and even if you’re good at it, sometimes life’s unpredictable challenges can send all your best-laid plans off course. But, before you consider calling in the administrators, or even the serious task of company liquidation, there’s a further option to consider – turning your company into a sleeping giant by registering it as a dormant company.

We understand that taking a break from your business can be a daunting decision, but there are cases where registering as a dormant company can be beneficial. There are legal and personal benefits that could help ease your worries about the financial impact of running an active company, and reduce your administrative burdens.

In this guide, we’ll help you navigate the process of registering a dormant company. With a few straightforward steps, you can protect your business, reduce costs, and streamline administrative tasks while you focus on personal matters, a full business pivot, or whatever else you need.

We’ll cover everything from choosing a name and filing the necessary paperwork to understanding legal obligations and potential reactivation in the future. 

What is a dormant company?

A dormant company refers to a registered company that is inactive and not engaged in any significant business activities or transactions. 

While dormant, a business does not generate income or have any active trading operations, and will not be engaged in any significant business activities. 

Why would a business owner register their company as dormant, though? There can be a few reasons:

• Potential future use: a dormant company can be reserved for future business activities. It allows entrepreneurs to have their company name and legal entity secured while they prepare for future operations.
• Asset protection: small business owners can separate their personal assets from the business, in the same way as they could with an active business. This company structure and legal separation can provide limited liability protection, shielding personal assets from any legal disputes.
• Tax status: dormant companies are generally exempt from various taxes, such as corporation tax, if they have no income or transactions. This can be advantageous for small business owners who are not currently generating revenue but want to maintain a legal entity.
• Professional image: Owning a registered company, even if dormant, can enhance the professional image of a small business owner. It may provide credibility when dealing with clients, suppliers, or potential investors.

Why register a dormant company?

Registering a dormant company can be beneficial for various reasons.

Benefits of registering a dormant company

One of your primary concerns may be preserving your hard-earned business name and brand identity. 

By registering as a dormant company, you can safeguard your brand identity, preventing others from using your business name. This means you can rest assured knowing that your brand will be ready and waiting when you decide to resume operations.

Additionally, the financial impact of maintaining an active company during a break can be significant. Registering as dormant exempts you from certain taxes (such as corporation tax), as long as no business activity takes place. 

A dormant company will also simplify your obligations. You’ll have fewer reporting and filing requirements compared to active companies, which means less time spent on complex financial statements and annual filings. Streamlining these administrative tasks is another advantage of registering as a dormant company. 

It also provides the flexibility to reactivate your operations smoothly when you’re ready to resume business activities. This eliminates the need for a completely new registration and reduces potential delays, ensuring a seamless transition back into the business. 

This flexibility is particularly advantageous for entrepreneurs who anticipate future business ventures, expansions, or changes in market conditions – such as the rising popularity of artificial intelligence and sustainability. Adapting and responding quickly to market opportunities is a valuable asset for small businesses in a dynamic and competitive environment.

Risks of registering a dormant company:

While dormant companies have advantages, they also entail certain risks. 

Dormant companies, which are temporarily inactive or not carrying out business activities, can be unexpectedly reactivated if the owner is thought to have resumed business operations. 

This risk is increased two-fold if you are in a business partnership, because there is someone else with the power to reactivate the business without necessarily giving you any notice or time to prepare, which could lead to unexpected fees.

As a partner in a company, it is important to be aware of this possibility and exercise caution. The sudden reactivation of the dormant company without prior notice can catch you off guard and potentially expose you to risks or obligations you were not prepared for.

To comply with UK law, dormant companies must fulfil specific requirements. 

These differ from those of non-dormant limited companies, but, as mentioned above, they will typically include maintaining proper accounting records, submitting dormant company accounts, and filing an annual confirmation statement.

If these obligations are neglected or not met, the company and its owner may face fines or legal action.

Who can register a dormant company?

Any individual or group can register a dormant company. There are no specific titles or levels of responsibility required at the point of registration or ongoing.

How to register a dormant company

The steps for registering a dormant company are quite similar to registering an active one. These are the steps you’ll need to take:

Step 1: Cease trading activities

Be sure to stop all business operations and ensure that your company is no longer actively engaged in any trading activities. This includes suspending sales, purchases, using your business bank account, and any other business-related transactions.

Step 2: Inform HM Revenue and Customs (HMRC)

You should inform HMRC that your company is becoming dormant. You can do this by submitting a final corporation tax return indicating that your company has ceased trading and will become dormant, and settle any outstanding tax liabilities before it can be completed.

Step 3: Notify employees and stakeholders

Once that’s done, you must notify employees about the company’s decision to become dormant and stakeholders, such as suppliers and customers, about the change in your company’s status.

Notifying your employees and stakeholders demonstrates transparency and maintains a positive relationship with the people you are working with. It can help alleviate any concerns or uncertainties they may have, and if you have an estimated timeframe for reactivation, this would be a good time to let them know.

Transparent communication fosters trust and can help preserve valuable relationships that may be beneficial when you decide to resume your operations in the future.

Step 4: Update company records

Update your company’s records with Companies House. Submit the necessary forms to indicate that your company is becoming dormant. The specific form you need to file depends on your company structure (e.g., private limited company, public limited company).

Step 5: Maintain statutory compliance

Ensure that you continue to comply with company law requirements, such as submitting annual accounts and filing confirmation statements with Companies House.

Step 6: Adjust insurance and licences

Review your company insurance policies and licences. Some policies may not be necessary while your company is dormant, so you may need to make appropriate adjustments to save some money.

Step 7: Manage bank accounts

If your company has any active bank accounts, consider closing or converting them to non-trading accounts. You should consult with your bank to understand the specific options available.

Step 8: Monitor and update company status

Even though your company is dormant, you will need to monitor its status periodically – because as mentioned above, there are certain circumstances in which a sleeping company can sometimes awaken, unbeknownst to you, or in a manner that may be sudden or unexpected. 

It’s good practice to stay informed about any changes in regulations or requirements for dormant companies to ensure ongoing compliance, and potential future compliance at the time you’re ready to reactivate, to avoid any additional fees or other nasty surprises.

Conclusion

While it may seem that there are a lot of things to do, just know that the process has the potential to save you time, money and energy in the long run, so this final housekeeping stage is usually worth it for most business owners. 

The decision to register a dormant company is an important one that should be made with careful thought and consideration. But remember, you don’t have to navigate this process alone. 

Seeking expert guidance beforehand can provide valuable insights and ensure that you comply with all the necessary laws and regulations and that you do it right. 

Additionally, don’t neglect to communicate changes to stakeholders about your intentions, and do the same in future about potential plans for reactivation. These are crucial steps to maintaining professional relationships and preparing for smooth transitions.

Taking a break from your business is not a sign of weakness but a courageous step towards self-care. You can protect what you’ve built, reduce costs, and alleviate administrative burdens, allowing you to focus on what matters most — your well-being and personal needs. 

For more information, see our guides on:

• Setting up a limited company (and what you need to know), 
• How to register a company name in the UK 
• Company director responsibilities explained