Planning to de-register your limited company in Hong Kong? Though it is a hard decision to make, if you have decided to call it quits, you must follow the right procedure to close your Hong Kong company.
Each limited company must be renewed every year after incorporation, no matter if your business is still operating or not. Even if your Hong Kong company stops doing business due to COVID 19, the Hong Kong government will not automatically strike off your company. If you plan to resume the business later, you can opt for dormant company status, which allows your company to remain registered at a minimum maintenance cost. Let’s understand the difference between a dormant company and closing down the company.
What is deregistration of a Hong Kong company?
If you have decided to close down your Hong Kong company permanently, the first step that you should follow is filing for de-registration. It is critically essential for business owners to ensure that the company doesn’t have any liability or debt. As per the Companies Ordinance (CO), firms are required to declare themselves solvent before filing for de-registration.
A company that has declared itself as defunct solvent and meets the requirements set by the Companies Registry can undergo the de-registration process. This process comes under CO section 750 and follows the most straightforward way to close the company.
The closing down of a Hong Kong company through the de-registration process means completely closing the corporation that doesn’t have any functional operation any longer. The following are obligations that need to be met in order to file for de-registration of your Hong Kong company:
- The company should not have any outstanding liabilities.
- The company should not have any legal proceedings.
- All members agree for the de-registration of the business.
- There is no immovable property of the company in Hong Kong.
- In case the company has the operations as a holding corporation, then none of its auxiliary assets include any immovable property located in Hong Kong
- Before the application for the business’s de-registration, the company hasn’t carried out any operation or hasn’t provided services or goods recently (application made at least three months after the business cessation date)
If the company meets all the requirements mentioned above, then the firm can apply for the de-registration procedure in Hong Kong.
What is a dormant company status?
A company can apply for dormancy and fall under the dormant company category when it doesn’t have any accounting transactions during the accounting period. The dormant company status entails that the company is legally approved to be ceased for carrying out operations for a temporary period, but it remains registered as a live limited company.
Under the dormant status, your company should have no business and no accounting transactions. Companies apply for the inactive status to save the time and cost for filing an annual return, appointing auditors, preparing audited financial statements, and holding annual general meetings. But there are some exemptions set by the CO where a dormant company in Hong Kong can avoid certain liabilities and enjoy continuing business in HK later. Remember that the amount paid to buy the shares when incorporated is excluded as “significant accounting transactions”, as well as maintenance expenses, until it starts carrying out company operations again (cease dormancy).
Companies that wish to be under dormant status can’t conduct significant accounting transactions such as the sale of goods, transactions that involve money received or expended by the company. Though the company’s managers can engage in their specific work, they need to ensure that the company is abiding by all the requirements for making certain payments.
Why obtaining dormant status is a good option?
There are times in the entrepreneurial world when some companies have to halt business operations either for personal reasons, health (COVID-19), or due to financial conditions. During this time, the dormant company status would be an available option for them. When a company formally notifies the Companies Registry for starting dormancy, it allows them to relaunch the business at their convenience and avoid incorporating another company.
Major Benefits of Dormant Company in Hong Kong
There are many benefits of choosing a dormant status for your company under Hong Kong jurisdiction. The most important advantage is that the person can hold the company inactive at a minimum maintenance cost with following the annual obligations set by the IRD. The company still has to fulfil the basic renewal requirements and filings once the company enters dormancy.
The following are the benefits of having a dormant company in Hong Kong:
Maintain Hong Kong company as a legal entity with low maintenance
It allows the business owners to maintain the company as a legal entity in Hong Kong at a minimum maintenance cost. The business can apply for the exemption of many company filings with a dormant company.
Protect the Hong Kong company name
Dormant status also helps companies protect their company or brand name. Under dormancy status, firms can retain any name registered under the limited company. Therefore, it helps people shield their organization from malicious intentions like sabotaging the company’s reputation, making it unattractive to the general public and investors.
To hold certain assets
When a business declares itself as dormant in Hong Kong, it can keep the company assets under its name, such as land properties, cars or intellectual properties. Dormant status can help the investors from losing the asset’s portion based on their balanced portfolio. Moreover, in order to preserve the assets, many investors may also hold the company’s majority shares under their ownership.
Annual Compliance Requirements of Dormant Company
Once you declare your company as dormant, it doesn’t mean that you are exempt from every obligation set by the CO. Even though dormant companies are entitled to have less yearly filings, as the company is still a legal entity in Hong Kong, there are some requirements that needs to be fulfilled:
- Renewal of the business registration certificate (BRC)
- Having at least one director, one shareholder, and one company secretary appointed
- A registered address in Hong Kong
- Notification of any changes in the company’s registered address or structure to the Registrar.
- Completion of the Profits Tax Return, Employer’s Return and other filings, in case any of these are issued by the Inland Revenue Department
Companies Not Allowed to Acquire Dormant Status
Dormant status is not allowed for all companies in Hong Kong. A public company or any company that falls under the following categories cannot claim dormant status:
- A corporation licensed under the Securities and Futures Ordinance;
- A dealer registered under the Commodities Trading Ordinance;
- A financial institution as per the Banking Ordinance;
- An insurer as per the Insurance Companies Ordinance;
- A Mandatory Provident Fund Schemes Ordinance trustee;
- A licensed leveraged foreign exchange trading as defined in the Leveraged Foreign Exchange Trading Ordinance;
- A Hong Kong company or a registered non-Hong Kong company which: receives or holds in Hong Kong client assets of the intermediary according to the Securities and Futures Ordinance; or holds the controlling entity relationship with an intermediary (i.e. licensed corporation or registered instruction).
- A company subsidiary falling under any of the above categories at any time during the preceding five years.
How does my Hong Kong company obtain dormant status?
By now you may be thinking of choosing dormant status for your firm instead of de-registration. Here is the way to apply for dormancy.
First, pass a special resolution authorized by the company directors to the Companies Registry. This special resolution will act as a statutory declaration stating that the company will become dormant. Within the 15 days of passing the resolution, the directors should deliver the special resolution to the Companies Registry as a proper filing.
Second, do not enter into any sale or purchase of the goods, or any other significant company transaction involving the business. The company directors can keep the company registered as an entity, but must ensure that they are complying all the requirements during the dormant period. Obtaining a dormant status doesn’t mean that the business has an exemption of all corporate responsibilities. The dormant status will only help to lighten up the burden of maintaining details in the accounting records so that you can maintain your business at a low maintenance cost.
If you are still confused about obtaining dormant status in Hong Kong, contact Startupr for us to review the company’s standing and the latest status with the government. We will help to apply dormancy status for your company, and also assist you in passing the Special Resolution with the Companies Registry.
How does my Hong Kong company cease to be dormant?
When you are ready to re-operate the business and remove the dormant status, you need to properly file for re-activation. You may simply start the accounting transactions and proceed the required filing to re-commence your business operation.
The good news is that it is pretty much the same procedure as when you applied for it. Companies would need to pass another special resolution declaring that the company has resumed operations and choose to be active again. The company’s directors should deliver this special resolution to the Companies Registry. After review and approval by the Registrar, the company will resume its active status, and a remark of “cease dormancy” will be written in the company profile.
Therefore, if the company undergoes accounting transactions, the company should cease its dormancy in a timely manner. The exemption from the delivery of annual returns ceases after the start of company accounting transactions.
On the other hand, if directors want to halt the business operations entirely, they can proceed to deregister the company. It means that the legal entity will be closed permanently and removed from the live status in the government records. This can be done via a voluntary procedure (de-registration) when the company has no debt or outstanding issues.
If you are thinking of choosing dormancy for your Hong Kong company and looking for professional advice, Startupr can help! As you may need a helping hand to go through the actual process, Startupr would be your best choice for you.
Our team provides complete services for applying dormancy or de-registration of the company. We give you the details and professional advice for better knowledge at each step. We can also assist you with the renewal of your company’s business registration certificate (BRC) and track your company’s status through our unique online Backoffice system.
We are now offering a special waiver for dormant service fee ($280 USD) for filing with the Companies Registry. You just need to pay $55 USD for Startupr to prepare the resolutions of the Director(s). So, enjoy this special offer worth $335 USD by paying only $55 USD to apply for dormant status for your Hong Kong company through Startupr. For more information about our services, contact us today!