If you’ve ever heard the word dormant before, it was probably in relation to a volcano. If you remember your high school science class, a dormant volcano is one that hasn’t erupted in a long time but has the potential to do so in the future.
It’s not dead, it’s just quiet and inactive. No one knows if and when the volcano might erupt again, but the possibility is always present.
The same thing happens in business all the time. A dormant company is one that has essentially stopped conducting business but hasn’t ceased to exist altogether.
The company may choose to remain in existence and begin conducting business again in the future. The dormant status will keep the business alive, even though activity has temporarily ceased.
What do you need to know about forming a dormant company? Keep reading to find out now.
Why does Dormancy Happen?
So why would a company become dormant in the first place? There are many reasons.
For existing businesses, a company might become dormant if the business owner needs extended time off. This could be due to illness or family complications, or simply due to long-term travel.
By designating the company as dormant, they are informing the tax authorities that they are no longer making any money, and thus won’t need to pay any taxes.
Other times, this happens when a company is growing, restructuring, or acquiring another company. There may be a period of time when transitioning, where the company stops conducting business temporarily to reorganize internal structure.
Still, some people start dormant companies from the beginning. When starting a new business, a company may start out as dormant, as the business registers its name with the governing authorities, but is still preparing for its initial launch.
Benefits of a Dormant Company
The main benefit of a dormant company is not having to pay taxes. Of course, since you aren’t actively earning revenue, there is nothing to pay taxes on.
By claiming dormancy status, your limited company is just letting the authorities know that you aren’t actively conducting business, so they won’t be expecting your company to be filing annual accounts and taxes.
Dormancy also allows you to reserve and register a business name ahead of time, securing the name you want, even before you are ready to conduct business.
Your company can remain dormant as long as you’d like it to, so long as you inform the tax authorities and cease all business activities. That means no earning income, providing services, making payroll, or moving money into or out of a company bank account.
To claim dormancy, a company will most likely file a tax return, showing a lack of revenue, which informs the tax authorities of dormancy. You can learn about company deregistration here.
Dormancy Gives You Options
So should you claim dormancy as a company? It’s a good option for those needing to take a break from operating their business, for whatever reason. A dormant company doesn’t cost you anything but allows you the option to continue business in the future.
Consider claiming dormancy for a period of time before closing up shop altogether.
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