Dormant company

The concept of Dormant Company is introduced under section 455 of the Companies Act, 2013 read with The Companies (Miscellaneous) Rules, 2014 and came into effect from 1st April, 2014. Basically it’s the status of company which is becomes dormant.

Dormant company in general means temporarily inactive. As per provision of Companies Act, 2013 any company can apply for dormant status of the company by making application to Registrar, if it fulfils the required conditions.

1. under Companies Act, 2013 Dormant Company

2. Meaning of Dormant Company  In common parlance, the word “Dormant” means inactive or inoperative. A dormant company is an excellent opportunity to start a company for a future project or hold an asset/intellectual property without having significant accounting transactions

3. Section 455 of Chapter XXVIII of Companies Act, 2013 According to Section 455 - (1)Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner  as may be prescribed  for obtaining the status of a dormant company .

4. Purpose for obtaining Dormant Status To set up a company you intend to use in the future. To hold a fixed asset such as a property. Taking a break from trading and then restart again. Company not intending to do any significant business for some period of time.

5. Who is eligible for being a Dormant Company Any Public Limited company , Private Limited company and One Person Company which are:- Companies Incorporated for Future Projects, or To hold only assets, or To hold Intellectual Property, or Inactive Company, and Company having no Significant Transaction

6. What is an Inactive Company? For the purposes of section 455,— “Inactive Company ” means a company which:- has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years ;

7. What do you mean by Significant Transaction? All Accounting Transactions are taken to be significant other than the following transactions:- payment of fees by a company to the Registrar (ROC); payments made by it to fulfill the requirements of this Act or any other law; allotment of shares to fulfill the requirements of this Act; and payments for maintenance of its office and records .

8. Prerequisites for obtaining status of Dormant Company no inspection, inquiry or investigation has been ordered or taken up or carried out against the company ; no prosecution has been initiated and pending against the company under any law ; the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon ; the company is not having any outstanding loan, whether secured or unsecured : Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with  Form  MSC-1   ; there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with  Form  MSC-1 ; the company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc .; the company has not defaulted in the payment of workmen’s dues ; the securities of the company are not listed on any stock exchange within or outside India.

9. How to apply for the Status of Dormant Company Hold a Board Meeting and pass a Board Resolution for approval to apply for Dormant Status of the Company pursuant to Shareholder’s approval Hold a General Meeting for passing Special Resolution with the approval of Shareholder’s, or Issue a notice to all the Shareholders of the company and consent of atleast 3/4 th Shareholders to be obtained (in value). File form MGT-14 File Form MSC-1 within 30 days of passing Special Resolution Registrar will consider and approve the application and will issue a certificate for Dormant Status of Company, if satisfied.

10. Mandatory Attachments in Form MSC-1 Certified true copy of board resolution authorizing making of this application. Certified true copy of special resolution authorizing for obtaining dormant status Auditor’s certificate. Statement of affairs duly certified by Chartered Accountant or Auditor(s) of the company. Copy of approval or no objection certificate (NOC) from the regulatory authority in case company is regulated by such authority. Latest financial statement and annual return of the company is mandatory to attach in case the same is filed to Registrar. Consent of the lender if any loan is outstanding. Certificate regarding no dispute in the management or ownership Any other information can be provided as an optional attachment(s).

11. Requirement to retain Dormant Status shall have such  minimum number of directors , (3 in case of Public Co., 2 in case of Pvt Ltd., and 1 in case of OPC) file such  documents (Return of Dormant Company) pay such annual fee  as may be prescribed  to the Registrar.

12. Compliances after achieving status of Dormant Company The company shall conduct a 1 board meeting in each half of a calendar year , and  gap between 2 board meetings should not be less than 90 days. The company shall file “Return of Dormant Company” annually  in an e-form MSC-3  indicating its Financial Position duly audited by Chartered Accountant in Practice within 30 days from the end of each Financial Year. Also, the Company shall continue to file the return of allotment (e-form PAS-3) and change in directors (e-form DIR-12) in the manner and within the time as specified under the Act.

13. How long can a company remain Dormant? A company may retain its status of Dormant Company for five (5) years once it has dormant company status, after it Registrar may strike off the name of the company from the register of companies.

14. Advantages of being a Dormant Company It is better to restart than to start from scratch and only Dormant Companies get such leverage . A Dormant Company might not be active or operational, but it remains in the eyes of the law.  Useful to start-up with future projects . Helps to hold a fixed asset  or an intellectual property Less compliance compared to the Company closure or strike off process.

15. Continued… Minimal Statutory compliances ( eg . Holding only 2 Board Meeting, Filing minimum e-forms in ROC, not requirement to hold Annual General Meeting) Easy to reactive and get the active status. No Dormant Company is liable to pay any taxes until it is reactive. No need to re-spend on Incorporation cost.

16. Consequences of Non Compliance The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.