If your company is no longer actively trading, then you need to make a decision about closing the company down or otherwise keeping it dormant until such time as you have a new purpose for it. There are costs and benefits of the two options which we discuss below. Read on...
If your company is no longer actively trading, but you are not quite ready to wind it up, then you may wish to keep your company dormant for a period of time. In our experience it is not uncommon for a company to be set up for a specific purpose, which then subsequently is achieved or falls away for some reason. In such a situation, directors of the company need to determine whether they wish to deregister the company (or wind it up), or otherwise maintain it as a dormant company.
There are costs and benefits of the two options which we discuss below.
The directors of a dormant company remain subject to the same legal obligations relating to the affairs of the company as would be the case for an actively trading company.
Keeping a company dormant
It is important to note that any dormant company is still required to comply with its obligations under the Corporations Act, which includes paying an annual review fee to ASIC. The ASIC annual review fee (for a proprietary company) is currently $267 (1 July 2019), and usually increases by CPI each year. In addition, if you appoint an accountant or advisor to attend to your annual statement review, as well as maintain your corporate register with ASIC then they are likely to charge an annual fee for this service. This fee could vary widely depending on which firm you are engaged with, and what other services they are providing to you as a client.
Furthermore, you also need to attend to your obligations with the ATO. If your company has no trading activity, then you can lodge what is essentially called a ‘NIL Return’. Again, if this is administered through your tax agent then they are likely to charge an additional fee for this service – although it should not be excessive.
If the company does not keep up to date with its reporting obligations and does not pay its annual fees with ASIC, then after a few years ASIC may move to deregister the company automatically. While this approach is sometimes taken, non-compliance with the corporations law, including non-payment of annual fees, may constitute an offence under the legislation by the directors.
Deregistering a company
The main consequences of deregistration are that the company ceases to exist as a separate legal entity and any undistributed property of the company “vests” in ASIC. That is, after deregistration, ASIC will be the party who deals with any assets of the company.
For this reason, all assets of the company should be identified and transferred prior to the deregistration application being lodged to minimise the risk of these assets being forfeited to ASIC. We are periodically instructed to reinstate companies when clients discover one of their former companies has retained assets which have been overlooked.
Directors also need to be conscious of any tax implications of transferring assets out of the company, such as stamp duty or capital gains tax implications. There may also be tax consequences of closing down loan accounts. The more complex the trading history of the company and its balance sheet, the more care needs to be taken.
To be eligible to deregister a company with ASIC the following conditions must be met:
- all members of the company agree to deregister
- the company is not conducting business
- the company's assets are worth less than $1000
- the company has no outstanding liabilities (e.g. unpaid employee entitlements)
- the company is not involved in any legal proceedings and
- the company has paid all fees and penalties payable to ASIC.
If the company is eligible for deregistration and you wish to proceed with the deregistration, then you can lodge your voluntary deregistration application with ASIC using form 6010.
Voluntary winding-up of a company
If your company is unable to meet the above conditions for deregistration with ASIC, then the company is not eligible to do so. If the company still wishes to cease, then it needs to enter into a voluntary winding-up by the shareholders. This requires the appointment of a liquidator to realise the company’s assets and otherwise finalise its affairs, and can be expensive, time consuming, and less ‘private’ than a straight forward deregistration.
Keeping dormant versus Deregistrating a company
You would only consider keeping a company dormant if you anticipated having a purpose for the company at some point in the future. Essentially you need to weigh up the compliance costs of maintaining the company in a dormant state for any number of years, versus the costs of deregistering the company and then incorporating a new company at some point in the future when required. You need to take into consideration ASIC fees, as well as any related tax and accounting fees that are likely to be payable to your accountant.
By way of example, we have provided below a comparison of the two different cost implications when using the services of ABN Australia.
1. Our dormant company service (which includes ASIC corporate registry, annual statement review, and lodgement of a NIL income tax return) is $360 per annum. The ASIC annual review fee is $273 per annum. Thus, your annual costs to maintain the company are $633.
2. Alternatively, our fee for company deregistration is $165, and the ASIC fee for company deregistration is $44. Our fee for company incorporation is $165.00, and the ASIC fee is $538. As such all in all, the total cost of deregistering the company, and then later incorporating a new company is $912.00. Note, however, if you use the services of another accounting firm they are likely to charge an additional $600 - $1500 in professional fees – bringing the total costs to around $1800.
Based on these assumptions, the option of keeping the company dormant is only less expensive if you keep it dormant for three years or less. Any longer than that, then it may just be worth deregistering the company and incorporating a new company later on when needed (from a cost perspective). Of course, after three years you may change your mind and decide you don’t need the company after all!
You can plug your own assumptions into the above analysis to work out what is best for your situation.
How we can help
The services discussed within the article are available through ABN Australia. Please click on the links below for more information:
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Please note this article is for information purposes only and does not constitute legal advice. Should you have any queries or require more information, please contact the team at ABNAustralia.com.au.