Non-Trading Company, Dormant Company & Deregistration

You may need to postpone the launch of your first operations or put your business on hold for some reason. In the worst case scenario, you may even have to consider deregistration. Whatever the circumstances, by making the right move at the right time, you can save on costs if you know what you are doing. Read on to find out your options.

The term “dormant” applies to a Hong Kong limited company that, in legal terms, has “no significant accounting transactions” during a financial year. Note that this is not the same as a “non-trading company,” a term that has no legal meaning.

No significant accounting transactions mean no entries in the company’s accounting records. The amount paid for shares when the company is first formed, and a few costs that the company may incur to keep the company registered at Companies Registry, do not count as significant accounting transactions.

If your company has no activity or business, no bank account and doesn’t own any subsidiaries, you may consider it as a “non-trading company” but note:

• Even though there may be no activity or business, there will be, at least, a few transactions related to capital and formation expenses, and you are still required to draft a profit and loss statement and balance sheet;
•  An annual audit is still required; and
• An annual business registration (BR) fee, as well as annual return (AR) filing fee are still payable.

So, if your company has or will have “no significant accounting transactions” during a financial year, you may consider officially registering it as a “dormant” company. If you are prepared to take this step it is important to remember:

• An annual business registration (BR) fee is still payable;
• You are required to file an annual return (AR) for the year it is registered as dormant but no more after that (note: can be completely avoided if dormant effective date is within 42 days of the incorporation anniversary of your company); and
• Bookkeeping should continue to be prepared, but audits will no longer be required.

In other words, if you are not planning to operate with your company on a short-term basis (less than 2 to 3 years), it is highly recommended you officially register the company as dormant. Taking this action will imply some professional fees, but you will only face minimum costs.

On the contrary, if you have no plan to operate your company on a medium/long-term basis (more than 2 to 3 years) and do not want to support any costs, the only alternative is to deregister the company which will imply higher professional fees but no more future costs.

Are you considering one of the above options but not sure which one? Check out our infographic below for a summary of ongoing requirements for a non-trading company, dormant company, or company undergoing deregistration for comparison.

Want to discuss further?

The iNCUBEE Team will be pleased to answer you. Visit our website.