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Should I close my company or leave it dormant?

Closing down a company is a serious decision that needs careful consideration, whatever the reasons for closure. If you have any doubts about whether closing down your business is the right move to make, leaving it dormant might be a better option.

The company must be solvent, whether it’s being dissolved or if you’re going to let it lie dormant. Understanding exactly what it means for your company to lie dormant is the first step in deciding whether to take this option, or if you should in fact close it down completely.

What is a dormant company?

Companies House define a dormant company as follows:

“A company is dormant if it has had no ‘significant accounting transactions’ during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records.”

Essentially, a dormant company is inactive but remains on the Register of Companies at Companies House.

So what are the benefits and drawbacks of each option?

What are the advantages and disadvantages of leaving your company dormant?

Advantages

  • You can take time away from running the company, if you become ill, for example, or need to move abroad on a temporary basis
  • The costs of administering a dormant company are lower
  • It gives you time to formulate a restructuring plan if necessary
  • There is no limit on how long a company can remain dormant
  • The costs are also lower when compared with closing down a company

Disadvantages

  • Some administrative duties and obligations remain even when your company is dormant.
  • You must file dormant accounts, and submit a Confirmation Statement to Companies House on an annual basis.

Similarly, what are the advantages and disadvantages of closing your company?

Advantages

Disadvantages

  • There can be serious tax implications, depending on how you extract funds from your company
  • Creditors are able to restore the company to the register if they can prove your company owes them money
  • Should you change your mind, you’ll have to go through the entire company formation process again

Closed or dormant? Which is the best option?

Closing down a business by voluntarily striking it off the register at Companies House could be the most suitable option if you’re certain the company won’t be of use to you again in the future.

If you obtain professional guidance and tax assistance to manage your tax liability on closure, it could prove to be beneficial, particularly if you have another venture in mind or want to move back into employment.

Making your company dormant, on the other hand, is a good option when you think the business may again be of use. You can simply notify the relevant authorities and begin trading again in the future if necessary.

If you would like further information on the merits and drawbacks of making your company dormant, rather than closing it down for good, Begbies Traynor can help. We’ll provide the professional insight you need, and ensure you understand the ramifications of each option. Call for a free same-day consultation – we work from over 50 offices nationwide.

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