A private company can pass a special resolution to acquire the dormant status, and, as a consequence, enter into a state in which it is exempt from certain requirements. In this article, our team of Hong Kong lawyers answers some of the most important questions on dormant companies and offers a clear definition of this status.
Investors who have opened a company and wish to know more about how to apply for dormant status or those who simply need legal counseling on whether or not this is a suitable option for their business can reach out to the experts at our law firm in Hong Kong for more details.
Table of Contents
1. When is a company considered dormant?
A limited company in Hong Kong is considered a dormant one when it has had no significant accounting transactions. In practice, this means that the business has had no entries in its accounting records, which are kept in accordance with the local accountancy regulations.
Business owners should note that the dormant company is not the same as the non-trading company which has no legal implications for the company, as opposed to the dormant status.
A distinction is also made between significant accounting transactions and those that are not taken into account for the dormant status. For example, the fees payable to the Companies Registry for maintaining the company registered are not included herein.
2. What are some reasons for a company to become dormant?
In most cases, a company is declared dormant because in this state it will require minimum maintenance costs. As previously stated, the company will have no entries in its sales/purchase accounts, meaning that it will not engage in any economic activities. The only costs will be the fees to the Companies Registry because the company remains a registered one.
In other cases, the reason for a company to be dormant can be to protect the company name or, as needed, to hold assets or intellectual property. One of our lawyers in Hong Kong can provide investors with more information on these available options.
3. Are there are compliance requirements while a company remains dormant?
The following four issues will still need to be addressed by dormant companies in Hong Kong:
- Maintain its structure: this refers to the management structure, as the company will need to maintain one director and one shareholder as well as the registered office and the secretary.
- Changes report: any changes that may occur in its status or otherwise are to be reported to the Registrar.
- Make renewals: as mentioned, the company will renew its business registration annually by paying the current fee.
- Filing requirements: the company will need to file the profits tax return if the Inland Revenue Department issues one.
The duties and responsibilities of a dormant company’s officers remain the same as in the case of any other company in Hong Kong. The directors maintain their duties concerning the good management of the company and to the best interest of the shareholders. They also maintain their responsibilities for timely reporting to the Company Registry.
One of our attorneys in Hong Kong can provide more details about the ongoing requirements.
4. How can a dormant company be reactivated?
A dormant company can be reactivated when it starts doing business once again. For this purpose, it will file a statutory declaration with the Registrar. In practice, the company directors will be the ones to send the initial statement to the Registry in which they will inform the authorities that the company intends to resume its status. Once this step is complete, the company will resume its regular requirements.
Company owners who, instead of reactivating a company decide to terminate it can do so by requesting that the legal entity be struck off from the register. The de-registration can be voluntary when the company has no debts or obligations. When the company needs to resolve certain issues, the procedure will the one for voluntary liquidation. For more information on liquidation, please reach out to our team of lawyers in Hong Kong.
Hong Kong is a renowned financial center and many investors choose to open a company here. For whatever reason, either because of poor management or insufficient funds, as well as other reasons, in some cases companies will need to close. The following statistics highlight the available numbers in 2019:
- – monthly company dissolutions in January: 13,241.
- – total companies subject to dissolution in April: 12,525.
- – the number of companies subject to dissolution in June: 6,159.
Contact our law firm in Hong Kong for complete assistance for claiming the dormant status as well as reactivating a company that has been declared so.