Dissolved Or Dormant: Which Is Right For You?

  1. Home
  2. Knowledge Base
  3. Running a business
  4. Dissolved Or Dormant: Which Is Right For You?

You never know what’s around the corner and it may be that your company is of use to you again at some point. So what’s the difference between being dissolved and dormant, and when should you choose which option? This guide is designed to help you find out.

 

What’s the difference between dissolved and dormant?

When your company was formed it was added to the Companies House register of companies. When we talk about a company being dissolved we’re referring to the opposite process, where a company is removed (‘struck off’) from the register and it ceases to exist as a separate legal entity.

In some situations Companies House takes matters into its own hands and strikes off a company itself. This includes cases where the directors have failed to keep up with their reporting requirements. In most situations though, the company itself brings about dissolution by making an application to Companies House. See our guide ‘How do I dissolve my company?’ for a rundown on what’s involved here.

So then, what’s a dormant company? Companies House classes a dormant company as one that ‘has had no significant accounting transactions during the accounting period’. This means it is completely inactive and you don’t use it for any transactions (no matter how small), although you are still required to ‘check in’ with Companies House each year by filing dormant company accounts and an annual return. So long as you keep up with these very basic filing requirements you can keep a dormant company going indefinitely.

 

Can I resurrect a dissolved company if required?

In theory you can, although there are two important points you need to be aware of.

Firstly, there’s the fact that if you voluntarily applied to have your company struck off you’ll have to get a court order to have it restored. As a general rule, you can apply for this for up to six years from the date of dissolution. It involves completing a formal claim form and a witness statement setting out the reasons for the request. The whole process takes a minimum of three months and, when you take into account court fees, treasury solicitors’ fees and your own legal costs, it is easy to rack up a bill around the £1,000 mark.

Secondly, while a company is dissolved there’s nothing to stop that company name being re-used by someone setting up a new company. This new registered company will have a different company number and will be a completely different entity to your old company, but it means that if this happens and you did wish to restore your old company you’d have to do so under a new name. By contrast, if you maintain a company as dormant the name cannot be used by anyone else.

 

What’s involved in keeping a company dormant?

Here’s a rundown on what it takes to make a company dormant and how to keep it that way:

  • Tie up any loose ends by paying outstanding creditors and cancelling business contracts, both with customers and, for example, with utilities and other service providers.
  • Discharge any outstanding liabilities with HMRC and pay any outstanding VAT. Inform your local Corporation Tax Office that your company is now dormant. You will then be sent a notice to pay any Corporation Tax still owed.
  • There’s no need to specifically inform Companies House that you’ve become dormant. On an ongoing basis, however, you are required to keep up with your annual filing requirements. This involves dormant company accounts, which consist essentially of a balance sheet demonstrating that your company has not been involved in any transactions over the last year. It also includes an annual return, a snapshot of current information concerning the company. The filing fee for this is £40 if you file by post or £13 if you do it online.

 

Dissolved or dormant: what’s the best option?

Dissolving your company tends to be appropriate where there’s no reasonable prospect of you having a future use for it. For instance, perhaps it was set up to exploit a very specific opportunity and this has now run its course. Sometimes companies can become redundant because of a takeover or wider re-organisation of your business structures.

Keeping it as dormant tends to be preferable where there’s a chance the company will be needed again. This could be where there’s an outside chance that you’ll be able to secure investor interest in a particular idea or where there could be a sudden change in market conditions in your favour. If the name of the company relates to a brand that you have previously worked hard to build, is there a chance that the brand could be used to promote a new idea in the future?

Looking for a new idea to exploit under your existing company name? Check out our help centre for hints and tips, or read our free company formation guides for a step-by-step on how to set up a new company.

 

Was this article helpful?

Related Articles