What Are Dormant Companies? Should I Keep My Company Dormant?
A dormant company is exactly what it says on the tin; it’s a limited company that doesn’t trade and has no accounting transactions. So, why would you want to make your company dormant?
There are a few reasons company owners want to have a dormant company, from protecting a trading name to not being ready to start trading yet. Whether you should keep your company dormant will depend on why you made the company dormant in the first place.
You want to use the company in the future, but you’re not ready yet
You’ve had an amazing idea for a business, but you only have one problem, you have other commitments, and you’re not prepared to start trading yet. You can form your company in preparation for trading, so when you’re ready, it’s one less thing for you to worry about.
The main reason to do this would be to prevent your competitors from registering the name you have chosen for your company.
Once you are ready to start trading again, there is no reason to keep your company dormant, and you can start trading as usual.
Added protection as a sole trader
While this may seem a little counter-intuitive, some sole traders like to register a dormant company while maintaining their sole trader business.
What happens if you’re a sole trader who doesn’t want the extra filing responsibilities that comes along with a limited company, but you want to make sure no other company uses your business name? The answer is to set up a dormant company but keep running the sole trader business.
Imagine if one of your competitors set up a limited company with your sole trader business name? There could be reputational damage, and you could lose out on business that they’re taking from you.
As long as you want to keep the sole trader business running, there would be no reason to make the company active. However, if you need the added protection of the limited company, you can easily make it active without worrying whether the company name has been taken by another business.
To take a break from trading
Running a company is hard work, so you might want to take the occasional break from it. Typically, if this is a permanent break, you would wind up the company. However, if you need a short-term break, making the company dormant is a good option.
While this can be a good solution, don’t forget you will still need to submit your company’s confirmation statement and annual accounts to Companies House.
Making a dormant company active
If you decide to make your company active, you must inform HMRC that you have started to trade. This can be done on the gov.uk website.
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