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Startup on ice? Here is what to do next.

Startup failure is awful , and people usually avoid mentioning it, but it happens. And when it does, you may face the struggle of what should you do next. Courtesy of Desiree Da Silva from LCCS, she wrote a blog post to talk about what your choices are. See the original post here.

You may need to postpone the launch of your first operations or put your business on hold for some reason. In the worst case scenario, you may even have to consider deregistration. Whatever the circumstances by making the right move at the right time, you can save on costs if you know what you are doing. Read on to find out your options.

The term “dormant” applies to a Hong Kong limited company that, in legal terms, has “no significant accounting transactions” during a financial year. Note that this is not the same as a “non-trading company,” a term that has no legal meaning.

No significant accounting transactions mean no entries in the company’s accounting records. The amount paid for shares when the company is first formed, and a few costs that the company may incur to keep the company registered at Companies Registry, do not count as significant accounting transactions.

If your company has no activity or business, no bank account and doesn’t own any subsidiaries, you may consider it as a “non-trading company” but note:

  • Even though there may be no activity or business, there will be, at least, a few transactions related to capital and formation expenses, and you are still required to draft a profit and loss statement and balance sheet;
  •  An annual audit is still required; and
  • An annual business registration (BR) fee, as well as annual return (AR) filing fee are still payable.

So, if your company has “no significant accounting transactions” during a financial year, you may consider officially registering it as a “dormant” company. If you are prepared to take this step it is important to remember:

  • An annual business registration (BR) fee is still payable;
  • You are required to file an annual return (AR) only once, that is for the year it is registered as dormant but no more after that; and
  • Bookkeeping should continue to be prepared, but audits will no longer be required.

In other words, if you are not planning to operate with your company on a short-term basis (less than 2 to 3 years), it is highly recommended you officially register the company as dormant. Taking this action will imply some professional fees, but you will only face minimum costs.

On the contrary, if you have no plan to operate your company on a medium/long-term basis (more than 2 to 3 years) and do not want to support any costs, the only alternative is to deregister the company which will imply higher professional fees but no more future costs.

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