“Dormant” literally means “sleeping” and technically all companies are dormant immediately after incorporation. Many stay in that condition and around 19% of all companies in the UK are recorded as dormant. Companies become active when there are ‘significant accounting transactions’ during the period.
Why buy a company to keep it dormant ?
Companies can be dormant for various reasons, for example to:
- Protect a name. A common use is to simply protect a name. In this way a “brand” or a name associated with an existing active company can be protected – for example in readiness for a future project.
- Allow use of a name. A protected name can be licenced for use as a trading name to a distinct operating division within another company.
- Hold shares. Shares in a company, in any country, can be held by a dormant company in the UK. Where a country encourages such inward investment, it can often offer special terms to both encourage and reassure protection for the investing UK share holder. Emerging economies do this. If they are members of the World Trade Organisation or aspire to membership of other economic or trading groups they may be required to offer such support to inward investors.
- Hold an asset. Another common use is to hold an asset or intellectual property. The asset can be used in another country and be subject to arrangements for control over its use.
- Hold intellectual property. Intellectual property covers musical, literary, and artistic works; discoveries and inventions, copy rights, trademarks, patents; and industrial design rights.
- Hold a stake in a business relationship. A dormant company can be used as the stakeholder in a joint venture or as principal to an agency.
- Own property. A company can hold the freehold of a property or the head lease as an asset but remain dormant by having the maintenance costs dealt with by others.
Anyone with business and family interests is naturally motivated to preserve and protect. A dormant company is most frequently used to protect assets. It can also be used in conjunction with trusts and foundations.
Compliance for a dormant company
A company can remain dormant for as long as is necessary – indefinitely, if for example, its purpose is to prevent the name being used by another.
In general terms the compliance requirements for both dormant and active companies are the same. For example both are required to file accounts. However it is the absence of significant accounting transactions that reduces this requirement to a nominal task for a dormant company.
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 who will run the company and be responsible for ensuring that all the legal requirements are met.