In case the private company does not operate as expected, but do not want to deregister the company and want to maintain the company’s status, is there a more suitable way?
After all, it costs a lot to file annual returns and hire auditors to prepare financial statements for auditing. At this point, you may consider declaring the company as an inactive company. This article will introduce the benefits of a dormant company and its application process:
How to understand inactive company?
A “dormant company”, or dormant company, means that the company has no “accounting transactions” and no debts during the financial year. As long as all members of the company agree, they can apply for becoming a dormant company according to the procedures.
That is to say, before the resumption of activities, the inactive company shall not carry out any “accounting transactions”, i.e. transactions of accounting records within the meaning of Section 2 of the Companies Ordinance, excluding any payment due to any regulations that the company is required to pay. Transactions arising from fees.
Benefits of applying as a dormant company
According to the Companies Ordinance, a private company may apply to be a dormant company for financial reasons, personal reasons, or the reservation of a company name, and is exempted from complying with some statutory requirements.
The most immediate benefit is that inactive companies can maintain the company at the lowest cost until recovery. During periods of inactivity, companies save on annual expenses and preparation time for related documents such as:
• No annual return required;
• No annual general meeting is required;
• No need to appoint auditors and prepare audited financial statements.
Therefore, the above related fees can be waived (inactive companies still need to pay the business registration certificate fees on time). However, if the effective date of a private company’s inactivity status is after 42 days after this year’s company anniversary date, the company is still required to deliver this year’s annual return.
How to apply as a dormant company?
In a nutshell, as long as the private company agrees to pass a Special Resolution, the company can be declared inactive.
However, section 5 of the Companies Ordinance states that after a company declares a state of inactivity, it is required to deliver the resolution to the Registrar of Companies for registration with:
• the date on which the special resolution was delivered to the Registrar of Companies; or
• a later date specified in the special resolution,
whichever prevails, the company is officially inactive by law.
Can any company apply for inactivity?
Although there are many advantages for dormant companies, non-private companies and the following categories of companies cannot apply for dormant status in Hong Kong:
• a financial institution as defined in the Banking Ordinance;
• an insurer as defined in the Insurance Companies Ordinance;
• licensed corporations under the Securities and Futures Ordinance, such as registered dealers, investment advisers, etc.;
• A Hong Kong company or a registered non-Hong Kong company that (i) has a controlling entity relationship with a company acting as an intermediary (ie a licensed corporation or a registered institution), or (ii) receives or holds the Securities and Futures Ordinance the Hong Kong client assets of an intermediary as defined;
• Trustee as defined in the Mandatory Provident Fund Schemes Ordinance;
• a subsidiary of any of the above categories of companies; and
• Companies that have fallen into any of the above company categories within the past five years.