Management of a Dormant Company or the 5-Year Management
If you have a closely held company and plan to conclude your business by either shutting it down or are considering selling your business, it may be worthwhile to investigate the regulations concerning dormant companies.
Assuming there is no business activity in your company for a period of five years, i.e., the company is in a dormant state, your shares change from being qualified to unqualified. The change in the status of the shares brings a significant tax advantage because the sale of unqualified shares is subject to a 25 percent tax, which should be compared to a doubled tax rate if the sale is of d qualified shares.
Even if you do not engage in business activity in your company during the time it is in a dormant state, you can still allow your capital to generate returns by investing your funds. However, this requires you to enter into a discretionary management agreement with an external asset manager, such as Kavaljer, in which you specify the framework for how the management should be handled.
To ensure that the setup is legally correct, it is recommended to consult experts in the field. By contacting us, we can refer you to several reputable accounting firms and lawyers who can provide advice on the approach.
Kavaljer has extensive experience in establishing and managing discretionary management assignments for companies in a dormant state. Please feel free to contact us for more information.
