Understanding the Differences Between Deregistration and Dormant Company Status in Hong Kong

Hong Kong provides businesses with flexible options when it comes to managing their company’s status. Two common approaches for companies that are not actively trading are deregistration and obtaining dormant company status. Each has distinct advantages and requirements. Let’s delve into the specifics of both processes to better understand their differences.

 

Deregistration in Hong Kong:

Deregistration is a process where a company officially ceases to exist. To be eligible for deregistration, a company must meet specific criteria:

1. Be a local private company or a company with local responsibility.
2. Have no current business, debts, or obligations.
3. Receive approval from all company members.
4. Not be involved in any legal proceedings.
5. Have no real estate in Hong Kong.
6. Have no activity or operations for at least 3 months before applying for deregistration.
7. Obtain a notice of no objection from the Commissioner of Inland Revenue.

The deregistration process involves submitting various forms and documents to the Inland Revenue Department and the Companies Registry. The entire process can take around 5 months. Once approved, the company’s proposal for deregistration must be published in the Hong Kong Gazette, and there should be no objection within 3 months for the deregistration to be official.

 

Dormant Company Status in Hong Kong:

Dormant company status allows a business to cease operations temporarily without undergoing deregistration. To be eligible for this status, a company must meet these criteria:

1. Have no relevant accounting transactions since the chosen date.
2. Receive approval from at least 75% of shareholders in favor of adopting dormant status.
3. Submit a statutory declaration of the intention to enter into dormant company status to the Registrar of Companies.

A relevant accounting transaction includes any purchase and sale, monetary transactions, and management of assets and liabilities. Once these conditions are met, the company can officially declare its dormant status.

 

Differences and Advantages:

Deregistration results in the company ceasing to exist, while dormant status allows the company to temporarily halt operations. Dormant status offers several advantages:

1. Cost Reduction: A dormant company is relieved from the burden of annual audits and annual return filings, reducing legal obligations and associated costs.
2. Asset and Name Retention: The company can retain its assets and name, making it easier to resume operations without the need for re-registration.
3. Minimal Obligations: Although certain obligations remain, such as having at least one director and shareholder, the overall administrative burden is significantly reduced compared to an active company.

 

In conclusion, choosing between deregistration and obtaining dormant company status depends on the business’s specific needs. If the intention is to halt operations temporarily and resume business in the future, obtaining dormant company status can be a prudent choice, allowing businesses to minimize costs and administrative burdens while retaining their assets and identity.