If you want to halt your business operations temporarily instead of deregistering your company in Hong Kong, you may want to consider applying for a dormant company. This guide will explain why you might use a dormant company in Hong Kong, the application process and the requirements you must fulfil.
Let’s start with the definition.
What is a dormant company?
A dormant company is a limited company that had no accounting transactions during a year, which is legally approved by the law and company members to cease conducting business activity for a temporary period. The company, however, stays registered.
Benefits of a dormant company
There are several benefits of establishing a dormant company or registering a standard company as a dormant company. Some of the benefits are:
Ability to relaunch the business
Due to unavoidable circumstances, you may want to halt your business. Instead of dissolving the company, you can apply for a dormant status that allows you to relaunch your business. This will reduce the hassle of setting up a new company.
A dormant company can be used to maintain assets and intellectual properties of the company rather than transferring them or using other methods.
Protecting the company name
A dormant company can protect your company’s brand, name and reputation. If you deregister your company instead, the company name will be available to the public, and other companies may register the name.
The dormant company can reduce any maintenance cost and is exempted from complying with the following legal requirements:
- Appointing auditors
- Filing annual returns
- Holding annual general meetings
- Preparing audited financial statements
How to apply for a dormant company status?
The main requirement that the company needs to meet to be able to apply for a dormant company status is that the company has not made any relevant accounting transactions.
Relevant accounting transactions include:
- Sums of money received and expanded by the company
- Sales and purchases of goods by the company
- Assets and liabilities of the company
To apply for dormancy, the company needs to pass a special resolution with at least 75% of the shareholders’ votes. Once the resolution is passed, the directors should file the special resolution with the Companies Registry within 15 days.
Companies not allowed to apply for a dormant company status
The following companies cannot apply for a dormant status in Hong Kong:
- A company that is not private
- A financial institution in accordance with the Banking Ordinance
- An insurer in accordance with the Insurance Companies Ordinance
- A corporation licensed under the Securities and Futures Ordinance (registered dealers, investment advisers)
- A Hong Kong company or a registered non-Hong Kong company which:
- Is an intermediary (licensed corporation or licensed instruction)
- Received or holds in Hong Kong client assets of the intermediary as defined in the Securities and Futures Ordinance
- A Mandatory Provident Fund Schemes Ordinance trustee
- A dealer registered under the Commodities Trading Ordinance
- A licensed leveraged foreign exchange trader as defined in the Levered Foreign Exchange Trade Ordinance
- A company subsidiary falling under any of the above categories during the preceding five years
Annual compliance requirements for a dormant company
Even though a dormant company is exempted from maintaining a number of accounting records, your company with a dormant status remains a legal entity and is required to follow certain legal regulations.
A dormant company must:
- Have at last one director, one shareholder, a company secretary and a registered office
- Report any changes of the officers or registered address to the Companies Registry
- Renew the Business Registration Certificate
- File profits tax return issued by the Inland Revenue Department (if any)
- Pay the annual business registration fee to the government
Can a company cease to be dormant?
Yes. If you no longer want the dormancy status, you will need to re-activate the company.
You will have to pass a special resolution with the majority of the shareholders’ votes and notify the Companies Registry about the cessation of the dormant status and declare that the company intends to enter into an accounting transaction.
The company will be deemed to have ceased to be dormant by making an accounting transaction even without notifying the Registrar.
A dormant company in Hong Kong is suitable for businesses that want to put their company on hold with minimal costs. There are a number of benefits of a dormant company, and you can continue operations anytime you want. We recommend contacting Acclime if you need any additional advice.
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