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. you can read more about " Dormant Company " here
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 propertyTo 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 a 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.
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 partyNo income tax, VAT,
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 applying of dividends to holders of shares
No outstanding loans to lenders
Fulfill ACRA conditions over the previous 12-month period
Assets (consolidated assets for parent company) are worth less than S$500,000Company has remained dormant since it was registered
Directors to file declaration that company has been dormant for the claim 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$500,000All dormant 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 CS/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 extension renewal annually.
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.
the 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 quickly for engaging in a business activity whether you're active or not.For these reasons it can become expensive to maintain a dormant company in the US.
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