We recently had a client that wanted to incorporate a UK company which they hoped would be dormant. There are many advantages to being dormant, you can notify that HM Revenue & Customs that the company is dormant and therefore there is no need to file accounts with them (although you do still need to file accounts with Companies House). A significant other factor is that your internal compliance and company secretarial costs go down (including our fees) as there are less corporate secretarial services to carry out.
This was fine with us, but it then transpired that the UK company was going to own the shares in another foreign company that had yet to be incorporated. Now I would normally say that a company that is there to own the shares in another company is in fact a holding company and not a dormant one but it raised the question of what is actually meant by being dormant.
Primarily it comes down to the accounts that need to be filed. Companies House have issued guidance (GBA10) that says that a dormant company is one that that 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. Note that the amount paid for shares on the formation of a company and a few costs that the company may incur in order to keep the company registered at Companies House do not count as significant accounting transactions.
So, in short, acquiring the new shares in the subsidiary would be a significant accounting transaction at the time. However, in the next financial year, if the subsidiary was also dormant (or at least not causing any accounting transactions in the parent) then it would be considered dormant.
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