Define a Dormant Company

Definition of a Dormant Company

Pursuant to the Companies Act, Cap 50 (the “Act”), a Company is considered Dormant during a period in which no accounting transaction occurs.

The following transactions are deemed not affect the Dormant status of the Company:-

1. The appointment of a Secretary of a Company;
2. The appointment of an Auditor;
3. The maintenance of a registered office;
4. The keeping of registers and books;
5. Fees, fine or default penalty paid to the Registrar (ACRA);
6. The taking of shares in the Company by a subscriber to the memorandum.

A Dormant Company is exempted from audit requirements. However, it will still have to submit its unaudited financial accounts with ACRA. If it chooses to have its financial accounts audited, it will submit the audited financial accounts together with the auditor’s report.

Most Companies today engage the services of an accountant to prepare its financial accounts. Since the Act requires a Dormant Company to submit its unaudited financial accounts with ACRA, expenses are incurred as a result of engaging the services of an accountant or a professional firm in the preparation of the financial accounts. Does this expense constitute as an “accounting transaction”? If so, wouldn’t it disqualify the Company from being Dormant?

The term “accounting transactions” is ambiguous under the Act. There is a need for a clearer definition of what transactions constitute to be “accounting transactions”. “Accounting transactions” arise from economic activities. Should not the focus be on economic activities rather than “accounting transactions” to determine what constitutes a Dormant Company?.

While a company is still "dormant" in that there is no economic activity, it is less likely that anyone will be prejudiced if it does not prepare financial accounts, especially if it is not publicly listed. Dormant Companies are there waiting to commence or restart its business. Hence, the financial accounts of a Dormant Company serve no useful purpose. The requirement for preparing financial accounts should be removed which inturn exempts the Dormant Company from filing requirements. So long as all records are kept and if the Company becomes active in the future, all prior years of “accounting transactions” can be properly accounted for.

Sandhurst Consultancy provides accounting and tax services as well as advice on company formation.

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