Starting and running a company in Hong Kong comes with various compliance and reporting requirements. However, there may be times when a business decides to pause its operations without closing down entirely. In such cases, applying for dormant status can be a practical and cost-effective solution. This blog post explores what a dormant company means in Hong Kong, the benefits of dormancy, the legal requirements involved, and how businesses can maintain or reactivate their dormant status efficiently.

What Is A Dormant Company?

A dormant company in Hong Kong refers to a private limited company that has ceased all significant accounting transactions during a financial year but remains legally registered with the Companies Registry. According to the Ordinance, a company is considered dormant if it does not enter into any accounting transaction, apart from those necessary under Hong Kong law such as paying the annual Business Registration fee. An accounting transaction is any financial activity that must be recorded in the company’s books under Section 373 of the Ordinance. A dormant company is “inactive” in operations but “active” in legal status.

Reasons For Declaring As A Dormant Company

A private company can seek to be classified as dormant company in accordance to Section 5 of the Hong Kong Companies Ordinance, so as to be relieved from complying with certain statutory obligations.

Mostly driven by financial considerations, personal considerations or to preserve the company name, companies would apply to be a dormant company. By obtaining a dormant status, most companies can avoid spending time and money on filing an annual return every year, holding annual general meetings, appointing auditors and preparing audited financial statements.

Read Declaring Dormant Company Status in Hong Kong

Benefits Of Dormant Company In Hong Kong

The primary advantage of the dormant status is that it lets a company keep the minimum charge of maintaining a company. Subsequently, the company will no longer be subjected to other annual regulatory obligations. And even though the company is going dormant in that one year, it needs to renew its status for the years that it is active.

Here are some of the benefits of being a dormant company in Hong Kong : 

Safeguard Reputation Of The Company

The choice of a dormant company or incorporation may be grounded on various sound reasons. Once your company has been registered as Hong Kong’s dormant company, the inactive status can also mean brand appearance and protection of your trademark.

To Hold Specific Assets

The majority of investors probably keep some of these assets as a part of a well-balanced portfolio, with the most conservative investors having the bulk of these assets in their formation for guaranteeing capital preservation. By declaring itself as a dormant company in Hong Kong, you can enjoy the opportunity to safeguard intellectual properties and certain assets. 

To Purposefully Cease The Company’s Activities.

If you currently don’t have a project pipeline, then you have the dormancy to cut down on the expenses of the organization. It will be a good help, mainly, when you have no legal formalities to fulfill. 

To Maintain The Company’s Status As A Legal Entity

Keeping a company operational at minimal cost can be challenging. However, dormancy offers an easy solution. By transitioning into a dormant state, your company becomes exempt from various legal obligations. Below are some of these exemptions outlined by the Ordinance:

1. Submitting the annual return 
2. Organizing annual general meetings 
3. Drafting audited financial statements and appointment or dismissing or replacing auditors 

To Fulfill Other Essential Needs

You can stop the operation to a certain extent when some conditions are met. However, the dormant status of the company lets you start up again any time you choose from the moment you are ready to do so by the existing company without going through the dissolution process. It speeds up the procedure of starting a new business from scratch.

How to Declare a Company Dormant in Hong Kong (Step-by-Step)

Declaring a company dormant in Hong Kong is a formal process. A company will not automatically be considered dormant simply because it has ceased business activities. Instead, the company must follow a specific legal procedure to enjoy the compliance exemptions available to dormant companies. Here is a clear, step-by-step guide to help you legally declare your Hong Kong company dormant:

Step 1: Pass a Special Resolution

The first requirement is to pass a special resolution (approved by at least 75% of shareholders) stating the company’s intent to become dormant. This resolution should include:

• A declaration that the company will become dormant, effective either on the date of delivery to the Registrar of Companies or a later specified date.
• Authorization for the directors to file the special resolution with the Companies Registry.

See below for a resolution sample

Step 2: File the Special Resolution with the Companies Registry

Within 15 days of passing the resolution, the directors must deliver the resolution to the Companies Registry. This submission is critical for the dormancy to take legal effect.

Step 3: Ensure No Relevant Accounting Transactions

To maintain dormant status, the company must not enter into any relevant accounting transactions as defined under Section 373 of the Ordinance. A “relevant transaction” includes:

• Any financial transaction that must be recorded in accounting records (e.g., revenue, expenses, asset purchases).
• Exceptions: Statutory fees such as the business registration fee are not considered relevant transactions and do not affect dormancy.

Step 4: Receive Official Dormant Status

Once the resolution is filed and no qualifying transactions occur, the company is officially recognised as dormant from the stated date. The Companies Registry will update its records accordingly. 

Legal Requirements and Compliance for Dormant Companies

Dormant companies in Hong Kong benefit from reduced compliance requirements and cost-efficient operations, but they are still subject to specific legal obligations to maintain their status. Here is a breakdown of the key annual and officer responsibilities, audit exemptions, and what constitutes a disqualifying transaction.

1. Annual Obligations

Even when a company is declared dormant, it must continue to fulfill some annual statutory requirements. These include:

• Renewing the Business Registration Certificate (BRC) annually with the Inland Revenue Department (IRD).
• Filing Annual Returns (Form NAR1) with the Companies Registry (unless exempt under specific dormant status provisions).

However, dormant companies are not required to prepare audited financial statements or hold annual general meetings, significantly reducing compliance costs.

2. Officer Responsibilities

Despite being inactive, a dormant company must maintain the basic statutory structure and fulfill administrative duties. The key officer responsibilities include:

• Maintaining at least one individual director, one shareholder, a designated company secretary (who must be a TCSP license holder), and a registered office address in Hong Kong.
• Notifying the Companies Registry of any changes to:
  • Directors or shareholders
  • Registered office address
  • Company secretary
• Responding to any issued Profits Tax Return from the IRD, even if the company remains dormant.

These responsibilities ensure that the company remains compliant with legal requirements and avoids penalties, even without active business operations.

Dormant Company Audit and Reporting Exemption

A core benefit of dormant status is the exemption from audit and financial reporting. Under Section 5 of the Companies Ordinance, a private Hong Kong company can declare itself dormant if it has no relevant accounting transactions since the date of incorporation or a resolution declaring dormancy.

Key exemptions include:

• No requirement to appoint auditors
• No need to prepare financial statements
• No need to have the financials audited

This results in significant cost savings for businesses intending to keep their company on standby. To maintain dormancy, the company must not enter into any accounting transactions that are required to be recorded under Section 373 of the Companies Ordinance.

4. Relevant Accounting Transactions

To qualify as a dormant company in Hong Kong, it must not carry out any accounting transactions which is defined as transactions that must be entered into the company’s accounting records. Examples include:

Not Considered Accounting Transactions:

• Payment of business registration fees
• Filing of statutory forms (e.g., change of officer or registered address)

Considered Accounting Transactions:

• Paying service providers or professional fees
• Incurring bank charges or earning interest in a bank account
• Receiving or paying out money related to business operations
• Transactions involving assets or liabilities

If such transactions occur, the company loses its dormant status and must comply with full reporting and audit obligations for that financial year.
These ongoing responsibilities are best managed with the support of a qualified company secretary or corporate services provider to ensure full compliance and maintain dormant status seamlessly.

Companies That Cannot Claim Dormant Status

Not all Hong Kong companies are allowed to be dormant companies. In Hong Kong, a company that is not private or falls under at least one of the following categories cannot claim a dormant status : 

• Financial institutions according to the Banking Ordinance such as banks: 
• Insurance officer according to the Insurance Companies Ordinance
• The Mandatory Provident Fund Schemes Ordinance trustee 
• A corporation that possesses the Securities and Futures Ordinance license 
• A registered dealer under the Commodities Trading Ordinance
• A Hong Kong company or any registered non-Hong Kong company that
  • is has a controlling entity relationship with an intermediary company such as a licensed corporation or registered instruction) or 
  • holds intermediary assets for clients in Hong Kong as defined in the Securities and Futures Ordinance, as Hong Kong’s legal framework.

• A licensed leveraged foreign exchange trader as per the Leverage Foreign Exchange Trading Ordinance 
• An established company that falls under any of the above categories at any time within the past five years.

Ceasing Of The Dormant Status

If you do not need a dormant company anymore, it is compulsory to validate it officially. If you want to restart your company and the business is operating normally, or if there is a transaction taking place in the company then you are still required to prepare the financial report.

Once you cease the dormant status, it will function like any normal business. You can decide to revoke the dormancy status and to have it re-activated, by following the same procedure as the one you used when applying in the first place.

After the dormant company enters a deal in the transaction, the company ceases to be dormant. This exemption of the annual return processing is no longer effective starting at the moment of the date of the accounting transaction.

For the company to be free from the dormant status, one special resolution should be passed indicating that the company proposes to adopt in an accounting transaction and the directors confirming the same should be forwarded to the Companies Registry for registration. Then, the company will restart its active status again. 

Ultimately, the shareholders are able to make this decision and they may vote to cancel the business if they conclude that it is no longer likely to succeed. This way, the legal entity will be de-registered permanently and removed from the register. This can be done by a voluntary deregistration or voluntary liquidation if the business is debt-free.

Read Understanding the concept of a Dormant Company and Shelf Company

Conclusion 

In conclusion, a dormant company in Hong Kong is a valuable option for businesses seeking to temporarily suspend operations while maintaining legal status at minimal cost. By avoiding accounting transactions and fulfilling a few key statutory obligations, such as renewing the Business Registration Certificate and maintaining basic company structure, companies can enjoy significant audit and compliance exemptions. Declaring dormancy allows businesses to preserve assets, protect brand identity, and easily resume operations which makes a strategic tool for cost management and long-term planning.

How FastLane Group Can Help? 

Fastlane Group, as a reputable company secretary firm, can assist in navigating the process of applying for and managing dormant company status in Hong Kong. They ensure compliance with regulatory requirements, handle necessary filings with the Companies Registry, and provide expert guidance on maintaining legal entity status while minimizing operational costs. Fastlane Group’s expertise streamlines the process, allowing businesses to focus on their strategic goals. Contact us now.