A company is considered dormant in Hong Kong when it has no noteworthy accounting transactions, meaning that there are no entries in its accounting records. The term is not the same as a non-trading company which is simply not engaging in any business activities, however, it may have under accounting transactions. Investors who open a company in Hong Kong should also be aware of the manner in which they can make their company a dormant one, as defined by law.
We present some of the frequently asked questions on dormant companies in Hong Kong. Investors who need more details on how to declare their company dormant, as well as how to remove it from this state, can reach out to our agents who specialize in company registration in Hong Kong.
1. How is the company declared dormant?
Many investors are willing to open a company in Hong Kong because of the pro-business climate and the low taxation regime. However, in some cases, a business decision is to pause the activities of the company. Investors can choose to turn into their company into a dormant one for a number of reasons, for example for protecting their company name or for intellectual property protection reasons. In most cases, the primary reason will be to maintain the company, although inactive, with low or minimum maintenance costs.
A company becomes dormant once it submits a special resolution to the Companies Registry. This dormant status applies from the date of delivery of this special resolution or any other later date if a special one is included in the resolution.
Below, our Hong Kong company formation agents list the main information included in the two versions of the resolution:
Situation 1: when the special resolution is signed in writing by all the company members/shareholders; the document is signed by the concerned individuals and it is delivered by the directors of the company to the Registrar for the formal registration.
Situation 2: the special resolution is passed at a general meeting, held at a convened address; it is signed by the chairman presiding at the meeting; the company directors are also the ones to deliver the resolution in this case.
Companies that are dormant cannot enter into any significant accounting transaction, such as the purchase or sale of goods or a transaction that includes money received and expanded by the company. A category is specifically excluded, and that is the payment of any fees that the company is to pay under a mandatory regime.
During the dormant period, the company’s managers will continue to engage in their specific work and ensure that the company complies with the aforementioned requirements for making certain payments. investors who wish to know more about the responsibilities of company officers in case of dormant companies can reach out to our Hong Kong company formation agents.
Some companies in Hong Kong are not allowed to become dormant. For example, investors who open a company in Hong Kong that is an insurer as per the Insurance Companies Ordinance cannot acquire this status. This restriction also applies to other types of companies.
2. Do dormant companies have any obligations?
Yes, companies that are declared dormant are still required to observe the following continuing obligations:
-maintain their management: the company will need to maintain one director, one shareholder as well as its registered office and the company secretary.
-report: any changes that may occur regarding its agents or office are to be reported to the Registrar.
-renew: the business registration certificate is to be renewed as well as any annual taxes to the Government are to be paid.
-filing: it should file the profits tax return for the final year when this applies; it is filed with the Inland Revenue Department.
3. Can a company cease to be a dormant one?
Yes. A company can renounce the dormant state by means of a special resolution that is submitted to the Registrar of Companies or when an accounting transaction that involves the company occurs. This transaction is one that is to be entered into the company’s accounting records. It does not include the payment of fees that the company is required to pay. An annual return will be submitted for the year in which the company ceased to be dormant.
Company owners should note that a company ceases to be dormant if it enters into an accounting transaction. For this purpose, an accounting transaction is defined in the Companies Ordinance and, in principle, it refers to any type of transaction that is to be noted in that company’s accounting records. Our team of agents who specialize in company formation in Hong Kong, who also work with accountants, can provide those interested with independent professional advice on how transactions are defined for this purpose. If the company ceases to be a dormant one on account of having engaged in an accounting transaction, then it no longer has to comply with the condition to deliver the annual return for dormant companies (this exception from delivery ceases on and after the date of the accounting transaction).
Investors who ultimately decide that the company is not to continue can choose to deregister it. This means that the legal entity will be officially removed from the register. This can be done via a voluntary procedure, when the company has no debts or by means of voluntary liquidation. One of our agents who specialize in company formation in Hong Kong can provide you with details about each of these procedures.
We invite you to watch a short video about dormant companies:
Reasons to turn a company into a dormant one
A dormant company has an important advantage: the shareholder or shareholders can keep it inactive with minimum costs, thus ensuring that it is still in existence when or if the business need arises. Some of the main benefits of having a dormant company in Hong Kong are the following:
Protect the company name: this is used to preserve the company’s name or brand; as this is different from the complete removal from the Register (when the name would become available again for public use); it can be a strategy for those investors interested in trademark protection;
Hold assets: in some cases, investors may decide that they wish to hold assets or intellectual property within a dormant company, rather than transferring them or using another method; saving all or part of the assets by means of declaring the company dormant can be a solution, as long as it is in line with the investor’s objectives and goals;
Suspend the company: in some cases, a deliberate suspension of the company is an adequate choice, for example if the company owners predict that they will have no new projects for the foreseeable future;
Other reasons: in some cases, investors may decide that this is a solution if they wish to continue to preserve the company as a legal entity.
We highlight the aforementioned fact that the dormant company will still be required to submit the annual return for the year in which it was declared dormant. However, after this formality, the maintenance will be minimal, at the same time allowing the founders to maintain the legal entity for future use.
Alternatives to making a company dormant in Hong Kong
Alternatively, if these reasons are not suitable for an investor’s business purposes, one ca choose to cease the company activities altogether. This means that the legal entity will be struck from the Register.
The following statistics are applicable to company dissolutions in 2019:
-January – 4,993 de-registrations and 106 liquidations.
-March – 7,775 companies de-registered and 116 liquidated.
-June – 4,929 companies de-registered and 62 liquidated.
In principle, there are a few steps that need to be taken into consideration by entrepreneurs who wish to close a company completely (a company that is solvent, as opposed to one that is insolvent). For this purpose, they need to do the following:
Apply for the notice of no objection: this is done with the Commissioner of Inland Revenue and our team of agents who specialize in company formation in Hong Kong can also help you during this step.
Submit the documents for the deregistration: these are the application for the deregistration of the private company, along with the payment of the non-refundable fee and the original notice of no objection obtained during the first step.
The deregistration of the defunct solvent company can take place when:
all the shareholders agree to this solution;
the company has not been in operation for 3 months immediately before this application;
the company has no outstanding liabilities and is not part of any legal proceedings;
the company has no assets in the form of immovable property located in Hong Kong;
the company has obtained the required “Notice of No Objection”.
In most cases, the notice for the deregistration of the Hong Kong company from the Register will be issued within 5 working days. The process is completed when the notice of the deregistration is published in the Gazette and there is no objection to this operation.
Investors who need more information on how to apply for a dormant status, as well as those who are considering closing their business operations, can contact us for more details.
Our team provides complete services for company formation in Hong Kong, however, we can provide the needed assistance for company liquidation as well as de-registration.
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