Are you thinking of closing down your business? You have two main options: to keep the company dormant or deregister it entirely. Each option has its own set of implications for your business’s future, so making the right decision is crucial.
In this guide, we will walk you through the key differences between dormant companies and the process of deregistering a company in Australia. By the end, you’ll be equipped with the information to make an informed decision.
Table of Contents
What is a dormant company?
A dormant company in Australia is a registered business entity that remains inactive but continues to exist legally. It maintains its Australian Company Number (ACN) and Australian Business Number (ABN) but does not conduct any significant transactions or trading activities.
You may choose to keep a company dormant if you expect to use it in the future, want to protect a brand name, or are undergoing a restructuring.
That said, maintaining a dormant company involves ongoing legal and financial obligations. Even if your company doesn’t engage in business activities, it must still comply with ASIC regulations, including paying annual review fees and keeping company details up to date.
Additionally, if you are the dormant company’s director, you’ll need to pass annual solvency resolutions and may need to lodge nil tax returns.
What does deregistering a company mean?
Deregistering a company in Australia means dissolving the legal entity, effectively closing it down permanently. This can be done voluntarily, by court order or as a result of a liquidation process. You might choose to go through a voluntary deregistration process if you have no intention of using the company structure in the future and want to eliminate ongoing compliance obligations and costs.
When you deregister a company, it ceases to exist as a legal entity and can no longer conduct any business activities. All assets held by the company at the time of deregistration become the property of ASIC. Deregistration also releases the company’s officeholders from their ongoing legal and tax obligations.
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Key differences: dormant vs deregistered company
If you are debating whether to keep a company dormant vs deregister your company in Australia, you should be aware of how each choice impacts the business.
Both options have distinct implications for legal status, financial obligations, and future business prospects.
| Factor | Dormant Company | Deregistered Company |
| Legal status | Remains a registered entity | Ceases to exist as a legal entity |
| ASIC obligations | Annual review fees and compliance | No ongoing obligations |
| Tax obligations | May require nil returns | No ongoing tax obligations |
| Asset retention | Company retains ownership | Assets transfer to ASIC |
| Reinstatement | Easily reactivated | Complex reinstatement process |
| Future use | Can be used for future business | Requires new registration |
| Brand protection | Maintains rights to the company name | Loses rights to company name |
Pros and cons of keeping a company dormant
Let’s take a closer look at the advantages and disadvantages of keeping a company dormant, meaning it still exists legally.
Pros:
- Retains the company’s legal entity and ACN/ABN
- Protects the company name and brand
- Easier to reactivate for future use
- Maintains business history and credit rating
Cons:
- Ongoing ASIC compliance requirements
- Annual review fees and potential professional service fees
- Directors must pass annual solvency resolutions
- May require lodging nil tax returns
- Continued legal responsibilities for officeholders
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Pros and cons of deregistering a company
Similarly, deregistering a company also has benefits and drawbacks.
Pros:
- Eliminates ongoing ASIC fees and compliance obligations
- Releases officeholders from legal and tax responsibilities
- Simplifies personal finances and reduces administrative burden
- Potential cost savings on professional services
Cons:
- Loss of company name and brand protection
- Assets become the property of ASIC
- Complex and costly process to reinstate if needed in the future
- Loses business history and potentially valuable ABN/ACN
How to decide: deregister vs dormant company
So, what is the right choice for your business? This will depend on several factors.
Future business plans
Decide whether you expect to use the company structure in the future. If you do, keeping it dormant may be your best option. Alternatively, deregistering the company could make your life easier.
For example, a small business owner who has decided to permanently close their retail store and has no plans to reopen or start a similar venture in the future would be better off deregistering the company.
In contrast, a tech startup that’s pausing operations to reassess its product strategy but plans to resume activities within the next year or two should keep the company dormant.
Financial implications
Assess the costs of maintaining a dormant company versus the potential costs of re-registering in the future.
Let’s say the annual ASIC fees and compliance costs exceed $1,000, and you don’t foresee reactivating the company for at least 5 years. In this case, deregistration might be more cost-effective.
On the flip side, if the annual costs of keeping the company dormant are around $500, and you plan to resume operations within 2-3 years, maintaining dormancy could be more economical.
Brand protection
Think about the value of your company’s brand. A generic company name with little brand recognition or value in the market might best be deregistered. However, if your business has a unique name and a trademarked name that has built significant brand equity in its industry, you may want to keep it dormant.
Compliance burden
Evaluate your willingness to manage ongoing compliance requirements for a dormant company.
For example, if you are a sole trader with a single business, the administrative tasks of maintaining a company structure may be overwhelming. However, if you already have multiple entities and a system in place to efficiently manage compliance requirements, then keeping the company dormant might be simple.
Asset considerations
Determine if the company holds any assets that you wish to retain control over.
If your company has no valuable assets and holds no intellectual property or real estate holdings, then deregistration is viable. However, you may need to keep the company dormant if it owns valuable patents or trademarks, even if its current cash assets are minimal.
Tax implications
Each option can have significant tax implications. For example, your business might have carried forward losses that you can use to offset tax obligations in future years — if so, it is best to keep the company dormant. That said, you may need to file nil tax returns and worry about other tax obligations, so deregistration might be easier.
Consult with a tax professional to understand the tax consequences of each option.
Legal obligations
Consider the ongoing legal responsibilities associated with maintaining a dormant company.
You can deregister a company with no ongoing contracts, leases, or potential legal disputes that require the entity to remain active. However, if your business is involved in long-term contracts or potential legal proceedings, maintaining legal status may be necessary.
Remember that each situation is unique. You may need to consult with legal and financial professionals to ensure you’re making the best choice for your business.
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Step-by-step guide: How to make a company dormant
If you’ve decided to keep your company dormant, here are the steps you need to follow.
- Cease all trading activities and close company bank accounts.
- Notify the Australian Taxation Office (ATO) of the company’s dormant status.
- Update ASIC records to reflect the company’s inactive status.
- Ensure all outstanding tax obligations are met, including lodging final tax returns.
- Cancel any business registrations, licenses, or permits.
- Maintain minimal compliance by paying annual ASIC review fees.
- Continue to pass annual solvency resolutions and keep company details up to date.
- Lodge nil returns as required by the ATO.
Step-by-step guide: How to deregister a company
Alternatively, here are the steps you need to follow to deregister a company.
- Ensure the company meets ASIC’s eligibility criteria for voluntary deregistration:
- Assets less than $1,000
- No outstanding debts
- Not involved in legal proceedings
- All members agree to deregistration
- Sell or transfer all company assets and close all bank accounts.
- Appoint a replacement trustee if the company acted as a corporate trustee.
- Cancel all company-held licenses and registered business names.
- Ensure all tax and superannuation obligations are up to date, including:
- Lodge final tax returns and activity statements
- Paying outstanding debts
- Finalising superannuation affairs
- Completing end-of-year reporting
- Submit ASIC Form 6010 online to apply for voluntary deregistration.
- Wait for ASIC to process the application and publish a notice of proposed deregistration.
- After two months, if there are no objections, ASIC will deregister the company.
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FAQ
What are the tax obligations of a dormant company?
A dormant company may still need to lodge nil tax returns and maintain compliance with the ATO. It’s essential to notify the ATO of the company’s dormant status and fulfill any remaining tax obligations to avoid penalties.
How long can a company remain dormant before deregistration is required?
There’s no set time limit for how long a company can remain dormant in Australia. As long as the company continues to meet its ASIC obligations, including paying annual review fees, it can remain dormant indefinitely.
Is there a cost associated with making a company dormant or deregistering it?
Making a company dormant involves ongoing costs such as annual ASIC review fees. Deregistering a company may involve some initial costs for finalising tax affairs, but it eliminates future ongoing expenses.
So, which option is right for you?
Deciding between keeping your company dormant or deregistering it depends on your unique business circumstances. While dormancy offers flexibility for future use, deregistration provides a clean break from ongoing obligations. Whichever option you choose, it’s crucial to meet all business tax compliance requirements.
Lawpath can help you make the right choice. Simplify the whole process with our tailored legal, accounting, and tax advice, as well as company deregistration services.
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