When deciding on the type of company structure your business will be, you may run across the term “dormant company.” You may wonder what this is and what it means to operate a dormant company. Simply put, a dormant company is one that is currently not trading and does not currently have any accounting transactions.
There are a couple of reasons why you may own a dormant limited company and how these companies can be useful for small business owners and for business start ups. First, you can use the dormant company entity to protect your business if you are operating as a sole trader and/or you are considering becoming self employed. The dormant company status also helps you to preserve your limited company if you are planning to stop trading for a period of time. If you have a death in the family for instance and need a few months to get things together or perhaps you must travel extensively for an undetermined amount of time, then a dormant limited company entity will keep your company safe until you return.
You can use a dormant limited company to protect your business as a sole trader. This is often the most popular reason that small business owners choose to own a dormant company. Operating your business as a sole trader has its benefits over forming a limited company. It is much less expensive to form and to run and is often easier. If you are operating as a sole trader however, anyone can register your company name as a limited company unless you own the trademark for your business name. This means that you could be operating your company one day and then learn that someone has stolen your business name the next. If they register the name with a limited company with Companies House, it is now legally their name to use and you will never be able to register it yourself. Owning a dormant limited company still allows you to operate as a sole trader but it also protects you from losing your business name.
Many use dormant companies in order to take some time off of their trading and protect their business while doing so. If you have to move overseas for a few years for example, then you can keep your company as is and then simply pick up your operation when you return. The main disadvantage to this is that you will still have to file full company accounts with Companies House annually so you will be out the cost of paying your accountant to provide these accounts. You can however, avoid the cost of maintaining the company during the time that you will be out so you are effectively saving money at the same time.
It will be up to you to determine if a dormant company is in your best interest. There are strict rules with Companies House that outline what constitutes a dormant company so if you are considering this option then you will need to familiarize yourself with these requirements. Make sure that your company meets the guidelines for being dormant before you define it as such.