What Does It Mean to Have a Dormant Company?

WLP Group

Having a dormant company is a common concept in the business world, but it can be confusing for those who are unfamiliar with the term. In this article, we will explore what it means to have a dormant company, delve into the significance of ACRA (Accounting and Corporate Regulatory Authority) status, and discuss the accounting requirements associated with maintaining a dormant company.

Understanding Dormant Companies

A dormant company refers to a registered entity that has ceased trading activities and has no significant transactions within a specific period. While the company remains in existence, it is inactive and does not generate any income or engage in business operations. This status allows business owners to keep an incorporated company for future use without incurring the costs and responsibilities of an active business.

Significance of ACRA Status

ACRA, the Accounting and Corporate Regulatory Authority, is the national regulator of business entities and public accountants in Singapore. ACRA plays a crucial role in maintaining transparency, accountability, and compliance in the corporate sector. When a company becomes dormant, it is required to update its status with ACRA, indicating its inactive state. This ensures that the company’s records accurately reflect its current situation and helps avoid any legal or regulatory complications.

Accounting Requirements for Dormant Companies

Even though a dormant company may not be actively conducting business operations, it still has certain accounting obligations that must be fulfilled. These requirements are in place to ensure proper record-keeping and financial transparency. The accounting obligations for a dormant company typically include the following:

  1. Financial Statements: Dormant companies are generally required to prepare financial statements, including a balance sheet, income statement, and cash flow statement. These statements provide an overview of the company’s financial position, even if there are no significant transactions.
  2. Filing of Financial Statements: In Singapore, dormant companies are typically exempt from filing audited financial statements. However, they are still required to file unaudited financial statements with ACRA. This filing ensures that the company’s financial information is available to the public and regulatory authorities.
  3. Annual Returns: Dormant companies are also obligated to file annual returns with ACRA. The annual return provides updated information about the company’s directors, shareholders, and registered office address. It is essential to keep these details current, even if the company is dormant.
  4. Tax Compliance: While a dormant company may not have taxable income, it must remain compliant with tax regulations. This includes filing annual tax returns with the relevant tax authorities, even if the company has no tax liabilities.

Having a dormant company allows businesses to maintain their legal entity while temporarily ceasing operations. Understanding the concept of a dormant company, the significance of ACRA status, and the accounting requirements associated with maintaining such a status is essential for business owners. By fulfilling the accounting obligations, dormant companies can ensure transparency, compliance, and a smooth transition when they resume business activities in the future.