What is the dormant company audit exemption in Hong Kong?

In plain terms: a company that does nothing can switch off the audit, but only by passing and delivering a resolution, and only until it enters any transaction.

What it is Section 447 switches off a set of Part 9 requirements for a company that is dormant under s.5(1). Among them: the financial-statement and directors' report rules in the relevant subdivisions, the auditor appointment and auditor's report rules, the auditor's rights (ss.411-412), and the later divisions on circulating accounts and related matters. In practice a dormant company is relieved from preparing audited accounts. The Companies Registry also states that dormant companies need not hold an AGM (s.611) or file an annual return (s.663).

Conditions in outline

• The company must be a qualified private company: not a bank, insurer, SFC-licensed corporation, approved MPF trustee and so on (s.5(6)-(7)).
• Members pass a special resolution (needs at least 75% of the votes cast) declaring dormancy and authorising the directors to deliver it to the Registrar.
• Dormancy starts on delivery or a later stated date.

Important

• It ends the moment the company has an accounting transaction (s.5(5), s.447(2)).
• After that, any member who knew or should have known, and every director, is personally liable for debts arising from the transaction.

This is the only audit exemption in the Ordinance.