Dormant Companies

This guide will help you to manage a dormant company so that you send Companies House everything that is needed to keep the company on the register. It will help you to understand the simple - but important - legal obligations that still apply to a company even when it is dormant.

What is dormant a company

The term dormant applies to a company that, in legal terms, has no significant accounting transaction during a financial year. It is not the same as a non-trading company, a term that has no legal meaning. No significant accounting transactions means no entries in the company's accounting records. The amount paid for shares when the company is first formed and a few costs that the company may incur in order to keep the company registered at Companies House do not count as significant accounting transactions.

The difference between a non-trading company and a dormant company

A company can be non-trading in the sense that it isn't doing business. But it may still have other accounting transactions going through its books, which means that it is not dormant in a legal sense. A dormant company must not have any accounting transactions except specific allowable transactions that can be disregarded.

Why have a dormant company

Companies can be dormant for various reasons, often to protect a company name, in readiness for a future project, or to hold an asset or intellectual property. Some flat management companies whose main purpose is to own the head lease or the freehold of a property choose to become dormant by setting up a residents' association to deal with any expenses.

A company can remain dormant for as long as necessary - indefinitely if, for example, its purpose it just to prevent the name being used by another company. However, there are expenses associated with keeping a company on the register. While the company is dormant, various other documents and annual company balance sheets must still be prepared and filed at Companies House.

Who runs a dormant company?

If it is to remain dormant, a company cannot have paid employees because their wages would have to be recorded in the accounting records. However, all companies, including those that are dormant, must have:

• At least one director for a private company (two directors for a public company); and

Responsibilities of the officers of a dormant company

The responsibilities of a dormant company's officers are the same as for those of a trading company. The directors and secretary manage the company on behalf of the shareholders or members. Among other things, they are responsible for holding meetings and ensuring that all the necessary returns, accounts and other documents reach Companies House by the due date.

What if the company is no longer required

If you decide that you do not need your dormant company, you can arrange to have it struck off the register. There are two ways of doing this:

• The company has no debts or other liabilities, you may be able to apply for voluntary striking-off and dissolution without going through formal insolvency proceedings; or
• The company has affairs to wind up, then the company can be put into voluntary liquidation.

Dormant Companies and Companies House

Although a company may be dormant, Companies House must still keep up-to-date information about it on record and make this available to anyone who wants to know about the company. They need to know:

• Where to contact the company - the registered office
• Who runs the company - particulars about the company officers
• Who owns shares in the company - the shareholders
• Where certain company registers are kept
• What the company's financial year-end is - also known as its accounting reference date
• What the company's assets and liabilities are - its annual balance sheet
• What rules govern the company - its memorandum and articles of association

Most of this information is registered at Companies House when the company is incorporated and, if anything changes, you will need to tell them. However, every year they will send to the company's registered office a summary of the information held on the public record at Companies House - the Annual Return (Form 363s). This must be completed and returned to Companies House and every year, the company must prepare a balance sheet and send that to Companies House.

Companies dormant since incorporation

By definition, these companies can only have entered into the following financial transactions:

• the issue of shares to subscribers who agreed to take such shares under the memorandum
• fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and
• late filing penalties imposed by the Registrar of Companies.

These companies may be able to file their dormant statutory accounts at Companies House using a simple form.

Companies that have become dormant

These companies must be dormant for the current financial year, but will have entered into transactions in earlier periods. These transactions may have resulted in residual balances appearing on the balance sheet in the current year. If so, Form DCA is not suitable as it has no provision for these balances. If there are no residual balances, other than those relating to the issue of subscriber shares, Form DCA may still be suitable.

Otherwise, the reporting and disclosure requirements for these companies can be diverse and complex. They are summarised in the Appendix.

Authorised share capital - the maximum number and nominal (or face) value of shares the company is allowed to create under the terms of its memorandum.

Issued share capital - the number and nominal value of shares actually issued to shareholders.

Called-up share capital not paid - the value of shares (generally that means the nominal value) that the company has issued without receiving payment.

Shares allotted during the year - the number of new shares allocated to members in the financial year.

Aggregate nominal value - the total face value of all the shares allotted.

Consideration received - the actual amount received for the shares.

How much time do I have to deliver dormant accounts to Companies House?

Usually 10 months after the accounting reference date. But this can be different for the first accounts and if the accounting reference date has been changed during the year.

Before sending your accounts to Companies House, check that you have:

• quoted the correct company number and company name;
• dated the balance sheet;
• included all the relevant figures for the current and the previous year;
• included all the dormant company statements;
• stated when the accounts were approved; and
• had the balance sheet signed by a director below all the statements.

A director must sign the balance sheet below all the statements.

What happens if my company starts trading again

Any company will cease to be exempt from audit as a dormant company if it:

• begins commercial or trading activities during the financial period; or
• would no longer qualify for some other reason.

If either of these happened, full accounts would be required for the financial year in which the company ceased to be exempt, and the directors might need to appoint auditors for the company. It may be that the company would qualify for exemptions as a medium-sized or small company.

What does no significant accounting transactions mean?

A company is dormant if it has had 'no significant accounting transactions' during a financial period. When considering whether a company is dormant you can disregard the following financial transactions:

• payment for shares taken by subscribers who agreed to take such shares under the memorandum of association;
• fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and
• payments made in respect of civil penalties imposed by the Registrar of Companies for delivering accounts to the Registrar after the statutory time allowed for filing.

• a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity;
• a person who carries on insurance market activity;

• it has been dormant since the end of the previous financial year; and
• it does not have to prepare group accounts for that year; and
• it qualifies as a 'small company' in relation to that year, or would have qualified as small but for the fact that it is:
• a public company; or
• a member of a group of companies which included a public company, a banking or insurance company, a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity, or a person who carries on insurance market activity.

Model balance sheets for dormant companies

If the company has only issued shares to subscribers who agreed to take such shares under the memorandum, then you will be able to use Form DCA. Likewise, Form DCA will be suitable if the company has paid fees to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns, or paid late filing penalties imposed by the Registrar of Companies provided the fees or penalties are paid by a third party without any right of reimbursement.

If you cannot use Form DCA, either because fees and penalties have been paid by the company or because the company has traded in the past and there are residual assets to be shown on the balance sheet, then the formats on the following pages provide a guide to the information you need to include (unless the company has opted to prepare accounts in accordance with international accounting standards for financial years beginning on or after 1 January 2005). These formats are designed to reflect all possible assets and liabilities that a company may have but you only need to include a particular heading if there is an amount other than nil to be shown.

These model balance sheets are for illustration only. They should not be photocopied and filled in. If the company has traded in a previous financial year, bear in mind that your previous year's balance sheet will show the company's financial position as it was then. If there have been no accounting transactions since, you could just be carrying forward the figures from last year.

There are two formats - marked A and B - either of which may be followed. The content of the two formats is identical; they simply present the balance sheet headings in a different order.

The balance sheet must balance:

• In format A, net assets must equate to the aggregate of capital and reserves.
• In format B, assets must equate to liabilities (including capital and reserves as balancing items).

Each entry must be an amount in figures (not words) or '0.00'. Companies House will not accept any document which shows 'Nil' where a figure should appear.

Each column of figures must be headed with the date on which the current and previous financial year ended.

Balance Sheet Format A

COMPANY NO. ............................ COMPANY NAME ..........................................

BALANCE SHEET AS AT ..../..../.......

(a) For the year ended . . . (date) the company was entitled to exemption under section 249AA(1) of the Companies Act 1985.

(b) Members have not required the company to obtain an audit in accordance with section 249B(2) of the Companies Act 1985.

(c) The directors acknowledge their responsibility for:

i. ensuring the company keeps accounting records which comply with section 221; and

ii. preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year, and of its profit or loss for the financial year, in accordance with the requirements of section 226, and which otherwise comply with the requirements of the Companies Act relating to accounts, so far as applicable to the company.

Approved by the board of directors on...............(date) and

signed on their behalf by......................(DIRECTOR)

Balance Sheet Format B

COMPANY NO: ................................ COMPANY NAME: .............................................

BALANCE SHEET AS AT ../../....

( a) For the year ended . . . (date) the company was entitled to exemption under section 249AA(1) of the Companies Act 1985.

(b) Members have not required the company to obtain an audit in accordance with section 249B(2) of the Companies Act 1985.

(c) The directors acknowledge their responsibility for:

i. ensuring the company keeps accounting records which comply with section 221; and

ii. preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year, and of its profit or loss for the financial year, in accordance with the requirements of section 226, and which otherwise comply with the requirements of the Companies Act relating to accounts, so far as applicable to the company.

Approved by the board of directors on...............(date) and

signed on their behalf by......................(DIRECTOR)

Notes to the dormant company balance sheet

If it is not included in the balance sheet, certain information supplementing the information given in the balance sheet or relevant to assessing the company's state of affairs must be given, if applicable, by way of notes to the balance sheet as follows:

• accounting policies, including those relating to depreciation and diminution in value of assets;
• authorised share capital;
• if shares of more than one class have been allotted, the number and aggregate nominal value of shares of each class allotted;
• information relating to any redeemable shares allotted;
• information relating to any shares which have been allotted during the financial year;
• information relating to fixed assets;
• details of indebtedness;
• basis on which sums originally denominated in a foreign currency have been translated into sterling;
• in respect to every item above (other than fixed assets) the corresponding amounts for the previous year;
• particulars of any subsidiary undertakings and of shares held in them, and the reason why group accounts are not required;
• where the company has acted as an agent for any person, the fact that it has so acted.
• information about financial fixed assets that could have been included at fair value but which have been included in the accounts in excess of their fair value, and where no provision has been made for their diminution in value.

For a dormant company - especially one that has never traded before - much of this information may not apply. However, you must consider whether it is relevant and include any items that are.

If the company has subsidiary undertakings, the following information, if applicable, may have to be given:

• particulars of any undertakings in which the company has a 'significant holding'. For example, the name and address of the business;
• the name of the company's ultimate parent company, and (if known) its country of incorporation;
• the names of certain intermediate parent companies, and their countries of incorporation or (if not incorporated) the addresses of their principal places of business;
• details of certain loans, guarantees and other such dealings made by the company in favour of directors and others.

What exemption is available

Dormant companies that are eligible and wish to take advantage of it can claim exemption from audit.

• Private companies that are dormant need only prepare and deliver to Companies House an abbreviated balance sheet and notes. A profit and loss account and directors' report do not have to be included in dormant company accounts filed at Companies House; but a directors' report and possibly a profit and loss account - if the company traded in the previous financial year - must be provided to members.
• Public companies that are dormant must prepare and deliver to Companies House a balance sheet and notes, directors' report and possibly a profit-and-loss account, if the company has traded in the previous financial year.

Provided the accounts are prepared so that they comply with the requirements, they do not have to be drawn up by a professional accountant. However, if you are in any doubt about how to prepare a set of accounts, we will be able to advise you.