Expand your corporate world!

Knowledge base

When Can a Company Be Classified as Dormant in Hong Kong

October 14, 2014

The types of companies that may be formed and regulated under the new Companies Ordinance in Hong Kong are public and private companies limited by shares; companies limited by guarantee without a share capital, public and private unlimited companies with a share capital.

Any of the different types of companies as listed above, according to the Ordinance states that they must keep accounting records which must show and explain the company’s transactions and disclose their financial position and performance. Accounting records must contain daily entries of all sums of money received and expended by the company, and the matters of which the receipt and expenditure takes place, as well as an accurate record of the company’s assets and liabilities.

COMMENCING DORMANT STATUS

The Ordinance states that a company is dormant if it said to have had no relevant accounting transactions during any given financial year. Accounting transaction can be defined as a transaction that is required to be entered in the company’s accounting records.

This means that a company must pass a special resolution, authorising its directors to make a statutory declaration that the company will become dormant, and deliver a copy of the declaration to the Registrar. Special resolution is when the members of the company pass a resolution that is by a majority of at least 75%.

The company shall be deemed a dormant company effective as of the date of delivery. If the declaration specifies a later date for the company to become dormant, it shall be deemed dormant from the date specified.

FINANCIAL STATEMENTS

Every company must appoint an auditor who must be a member of the Hong Kong Institute of Certified Public Accountants and hold a practicing certificate. The annual financial statements for a financial year must give a true and fair view of the financial position of the company as well as an accurate view of the performance of the company for the financial year.The process of rendering a company as dormant effectively allows an inactive company to be retained at a minimum maintenance cost as a dormant company is exempt from the preparation of audited financial statements and appointments, as well as the removal of auditors.

ANNUAL GENERAL MEETING

A company must hold a general meeting as its annual general meeting at the end of each financial year. In the case of a private company or a company limited by guarantee, 9 months after the end of its accounting reference period by reference to which the financial year is to be determined. The Ordinance also holds that this does not apply to a dormant company, effectively rendering it is exempt from holding general annual meetings, unless the company enters into a financial transaction, it will stop having an effect on and after the date of the accounting transaction.

ANNUAL RETURN

A private limited company incorporated in Hong Kong under the Ordinance is required to file an Annual Return signed by a Director, Company Secretary, Manager or Authorised Representative with the Companies Registry within 42 days after the company’s return date (excluding the year of incorporation.) This is relevant even if the information contained in the last return remains unchanged, it is still necessary to file an annual return certifying that there has been no change since the date of the last return.

The requirement to deliver an annual return for registration does not apply to a company who currently holds dormant status, however, it is still compulsory for a private company to deliver an annual return for the year in which it declares itself to be dormant if the effective date on which the company becomes dormant falls after the 42nd day of the anniversary of its date of incorporation.

ENDING DORMANT STATUS

A company that holds existing dormant status ceases to a dormant company by definition, if the company passes a special resolution declaring that the company intends to enter into an accounting transaction, and the resolution is delivered to the Registrar for registration; or there is an accounting transaction in relation to the company. The company will no longer be deemed dormant upon the date of said delivery or from the date of the declaration of the first accounting transaction.

Learn how to solve problems in your business today
X

Join the club

Every week, we'll be sending you curated materials handpicked tips about international business, law, taxes, accounting and compliance.

Plus, you'll be the first to know about our discounts!

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.