Previous articles have focussed on some of the legal requirements that face you as a director when you set up a company, namely the necessity to file annual accounts. However, there may be exemptions that are available to companies of a smaller size that alter the responsibilities and burden. The three main types of companies that can benefit from these extraordinary rules are smaller or medium-sized companies, group companies, and dormant companies.

The size of a company is commonly determined by the size of their balance sheet, their turnover, or the number of people they employ. For example, under the Companies Act 2006, a small company must have a maximum turnover of £6.5 million, a maximum balance sheet of £3.26 million, and be employing a maximum of 50 employees. To qualify for the exemptions of a small company, you must fulfil at least two of these conditions. Similar conditions regulate the classification of a medium-sized company also. There are certain restrictions in addition to these, for example, a public company cannot be classified as small.

The exemption for a smaller company is that they are allowed to submit a shortened version of their accounts to shareholders, and an abbreviated version when they file with Companies House. In addition to this, smaller companies are also not obliged to have their annual accounts audited. Despite these exemptions, some companies may still abide by the guidelines for larger companies. This may result from the anticipation of growth, or simply if they are part of a group of companies.

A company is deemed to be a dormant company if it hasn’t traded through its financial year, shown by no significant transactions. For a company to be classified as dormant, the only transactions can be those relating to incorporation or filings for the company. Similar to a small company, dormant accounts are also exempt from audit. However, shareholders with at least 10% of the share capital may request that an audit take place, as with a smaller company.

It is important to note that, in spite of not trading, dormant companies are still required to submit annual accounts for their financial year. However, like with a smaller company, there is an opportunity to take advantage of an abbreviated version of the accounts or specific Dormant Company Accounts which may be significantly shorter and easier to prepare.

If you have any further questions on your obligations after you set up a company, please contact our customer support team on 0844 893 0808.