The concept of dormant company in Hong Kong may be crucial to companies seeking to minimize their operating and obligations.
Therefore, this guide will help to define what the term dormant means for a company, the advantages and the disadvantages of such a state and how a company can stay legal.
Dormant Company Hong Kong
According to the HK Companies’ Ordinance, a dormant company is a company that has had no accounting transactions in that financial-year.
Inability of a particular company to engage in considerable business activities means that it can be referred to as a dormant company. It encompasses the transactions in all sectors of business that would otherwise be recorded in the books of accounts. These may be sales, purchases or any other business transaction. However, payment of fees to the Registrar of Companies, penalties and fines does not constitute material transaction.
Advantages of a Dormant Company
The most apparent benefit that can be derived from the election of a company as dormant is the exclusion of the statutory requirements. These may include the filing of annual returns, conducting of annual general meetings and providing of audited accounts. Moreover, it would relieved major portions of licensing and registration fees.
Dormant company will not have to incur on administrative expenses related to the continuous preservation of an active company. It is more advantageous to businesses which are not in operation at the moment but wish to continue in the future.
Critical Issues on Preserving the Dormant Position
While filing for dormant status is a relief to companies, notification of dormant status with the Companies Registry still need to be filed. These relations require indefinite standing readiness, so failing to maintain them implies losing one’s status involuntarily.
Certain actions like, business transaction makes the corporation to lose its dormant status. Therefore, company must also ensure that it meets the criteria for dormancy before making this declaration.
Process for Declaring a Company Dormant
The process of declaring company dormant involves passing special resolution and filing necessary documents with Companies Registry.
To apply for it, you will require to provide special resolution and a statement that no significant operation has occurred. The documentation must be well filled and provided to avert any chance of delay or complications in the approval process.
Disadvantages of taking a dormant status
As has been seen, there are various advantages associated with dormant status. However, like any other strategy, it has its weaknesses as will be discussed below.
- A dormant company can only enjoy its capital and not engage in any form of business activities and transactions
- Failure to adhere to the requirements of the dormant company law attracts penalties, fines or withdrawal of the dormant status.
- Companies need to scan their operations closely to ensure they are in compliance with the laws governing dormant companies.
How to Make a Company Dormant
In Hong Kong, a company can apply for dormant status with the Registrar if its members agree to temporarily halt business activities.
To qualify, the company must have had “no relevant accounting transaction” since its incorporation or a specified date.
To proceed, at least 75% of shareholders must approve, and a statutory declaration must be submitted to the Registrar.
Additionally, the company must pay an annual business registration fee to the Hong Kong government, and file a Profit Tax Return if issued by the Inland Revenue Department.
FastLane HR’s Suggestion
Informing a company dormant in Hong Kong might be very beneficial in many aspects. However, it is crucial to pay a particular attention to the restrictive factors and requirements of this status.
Because it can be quite challenging for a business to remain dormant and in the same time be ready for the change in operations. It is advisable for such businesses to consult with business professional like FastLane HR to ensure that all codes that apply to their status are adhered to and is ready in the event of a change in operations.