Temporary freezing of a company in Hong Kong: How to minimize maintenance costs. 

Conducting business in Hong Kong offers numerous advantages: favorable tax policies, transparent legislation, and a stable economic environment. However, there are times when a company may temporarily suspend its active operations. In such cases, fully liquidating the business might seem excessive, especially if there are plans to resume activities in the future. For these situations, Hong Kong legislation provides a solution— registering as a “dormant company” (dormant status). This status allows for a significant reduction in business maintenance costs and the avoidance of certain mandatory requirements while preserving the legal entity. 

In this article, we will explore how to transition a company to “dormant” status, what costs can be reduced through such a “transition,” and highlight important legal aspects that need to be considered. 

“Dormant” Company: Definition and Responsibilities 

According to Section 5 of the Hong Kong Companies Ordinance, private companies can apply for “dormant” status. A “dormant” company in Hong Kong refers to a registered private company that has temporarily suspended its operations and does not conduct any accounting transactions, except for the minimally necessary ones. This tool can be beneficial for companies planning to resume operations in the future but wishing to avoid the expenses associated with full business operations during the downtime. 

What expenses can be reduced by transitioning a company to “dormant” status? 

• Filing of Annual Return: For active companies, this is a mandatory procedure, but a dormant company is not required to submit this report. 
• Mandatory Audit: An audit of financial statements is not required, saving significant funds, especially for companies with a large volume of transactions. 
• Annual General Meeting of Shareholders: The company no longer needs to hold meetings to review business performance, which also reduces operational costs. 

Despite being exempt from certain obligations, a dormant company must comply with legal requirements applicable to all companies (both active and dormant). Thus, a dormant company must: 

• Have at least one director and one shareholder. 
• Maintain a registered address in Hong Kong. 
• Have a company secretary. 
• Renew the Business Registration Certificate (BRC) and pay the corresponding government fee. 
• Report any changes in the company structure and details of officers to the Companies Registry. 
• Submit a Profits Tax Return (PTR) issued by the Inland Revenue Department. 
• Maintain and keep a register of significant controllers. 
• Maintain and keep registers of directors, shareholders, and secretaries. 

Thus, despite being exempt from certain obligations, a dormant company must comply with specific requirements to meet legal standards. 

Ensure that all obligations are fulfilled on time to avoid penalties and fines from tax authorities and regulators. 

Key conditions for obtaining “dormant” company status include the absence of operational activities. The company must not conduct commercial operations, including generating income or selling goods and services. Only transactions necessary for fulfilling mandatory legal requirements—such as paying government fees, corporate secretary services, and registered address fees—are permitted. 

Companies not eligible for “dormant” status: 

• Financial institutions (banks, insurance companies). 
• Companies engaged in asset or securities transactions. 
• Organizations involved in managing reserve funds. 

Advantages of Transitioning to “Dormant” Company Status 

Reduction in Administrative Costs 

The most obvious benefit of transitioning to “dormant” company status is the significant reduction in operational and administrative expenses. Companies are exempt from the need to conduct audits, submit annual returns to the Hong Kong Companies Registry, and organize general meetings of shareholders.. 

Preservation of Legal Entity 

A “dormant” company continues to exist in a legal sense, allowing it to resume operations at any time without the need for re-registration or creating a new company. This is much cheaper and simpler than closing a company and subsequently restoring it. 

For example, a company planning to temporarily suspend operations due to market changes or resource shortages can use this status to maintain its business structure and shares. When the market recovers, the company can easily resume active operations. 

Protection of Assets and Intellectual Property 

Companies with assets or intellectual property can use the “dormant” status to protect these assets during periods of inactivity. This status also allows for the retention of control over corporate assets, trademarks, and patents without the need for liquidation. 

Process of Obtaining “Dormant” Company Status 

Preparation for Obtaining “Dormant” Status 

Before a company can apply for “dormant” status, it is important to complete several preparatory steps. These actions will help ensure that the process goes smoothly and efficiently. 

1. Review of the Company’s Articles of Association 

Ensure that there are no restrictions in the Articles of Association that would prevent the company from transitioning to “dormant” status. Some articles may contain provisions requiring the consent of other shareholders for a temporary suspension of activities. 

2. Updating Financial Documents 

Even if the company plans to become “dormant,” it is important to ensure that its financial statements are up- to-date. This is especially crucial if the last audit report is outdated. Updated financial documents are necessary for submitting to the relevant government authorities. 

3. Checking for Compliance Violations 

The company should not have any overdue legal obligations. 

After the preparatory stage, several sequential steps must be completed: 

1. Adoption of a Special Resolution 

The company’s shareholders must adopt a special resolution to transition the company to “dormant” status. This requires convening a general meeting of shareholders and obtaining at least 75% of the votes in favor. 

2. Submission of the Resolution to the Companies Registry 

Once the resolution is adopted, it must be submitted to the Hong Kong Companies Registry. The documents should be filed within 15 days of the resolution’s adoption. 

3. Ensure Approval of Dormant Status by the Companies Registry 

After submitting the resolution to the Registry, it is important to ensure that the Registry has reviewed the request positively and reflected the Dormant status in the registry 

How long can a company remain in “dormant” status? 

Companies in Hong Kong can remain in “dormant” status indefinitely. This is particularly convenient for organizations that do not wish to liquidate their business but plan to resume operations in the future. 

What to Do If the Company Resumes Operations? 

According to Section 5 of the Companies Ordinance, a dormant company ceases to be dormant when: 

• It passes and submits to the Companies Registry for registration a special resolution stating that the company intends to carry out a commercial operation. 
• The company has already undertaken such an operation. 

After the company regains active status, it is necessary to: 

1. Adopt a new special resolution to resume operations. 
2. Submit the resolution to the Companies Registry. 
3. If the date of the resolution to cease dormant status falls on the 42nd day or earlier of the company’s registration anniversary, submit the Annual Return (NAR1) for the year in which the dormant status ended. 
4. Prepare an audit of the financial statements for the year in which the dormant status was terminated. 
5. Subsequently, comply with all legal requirements applicable to companies with active status. 

It is important to note that by law, even if a special resolution is not submitted, if a dormant company undertakes a commercial operation, it ceases to be dormant and must comply with all legal requirements applicable to active companies.