Dormant companies are a common occurrence in the UK business landscape, with the number of dormant companies on the rise. But what exactly is a dormant company? ...
Dormant companies offer flexibility and cost-saving benefits for business owners!
In simple terms, a dormant company is a registered business that is no longer active, but still holds its legal status. This means that even though the company is not actively trading or generating income, it still needs to comply with certain legal and administrative requirements.
"There are various reasons why a company may become dormant!"
Economic downturns, business failures, and strategic decisions to pause trading are some of the common reasons. During times of economic recession, consumer spending decreases, leading to a drop in sales revenue for businesses. This can force companies to make difficult decisions such as downsizing or closing down certain parts of their operations, resulting in them becoming dormant.
One of the main benefits of keeping a company dormant is the flexibility it offers for business owners. If the economic and business circumstances allow, restarting a dormant company is much more time and cost-efficient than starting a new one from scratch.
This is because the process of dissolving a company and setting up a new one involves a lot of legal paperwork and registration costs. By keeping the company dormant, business owners can save on overheads such as staff, building, and equipment costs.
Dormant companies have lower tax obligations compared to active ones. This is because when a company is dormant, it is not generating any income, and therefore, does not have to pay taxes. This can be beneficial for businesses that are experiencing a temporary lull in operations or are in the process of restructuring.
However, it is important to note that even though a company is dormant, it still needs to comply with certain legal requirements. This includes submitting financial statements and making changes to director records if needed. Failure to comply with these requirements can result in penalties and even the company being struck off the register.
"So, what causes a company to become dormant?"
As mentioned earlier, economic downturns and recessions are one of the main reasons. In fact, statistics show a spike in the number of dormant companies during the 2008 global financial crisis and, more recently, during the pandemic.
Business failures, startup and growth stagnation, and restructuring and downsizing are other common reasons for companies becoming dormant. Disasters and external events, such as natural disasters or pandemics, can also force companies to become dormant.
It is also worth mentioning that some companies intentionally choose to become dormant. This could be due to abandoned business ideas or a strategic decision to pause trading for a certain period of time. In such cases, keeping the company dormant allows for a smooth and efficient restart of operations in the future!
Dormant companies play a significant role in the UK business landscape. They offer flexibility and cost-saving benefits for business owners, while also providing a way to keep the company registered and ready for future operations.
However, dormant companies need to comply with the minimum legal requirements to avoid any penalties. With the right strategy, businesses can navigate through challenges with ease.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about dormant companies, it may be a great idea to call me on 01908 774320 and let's see how I can help you.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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