“Explore the concept of Dormant Company under the Companies Act 2013 in India. Understand its definition, filing obligations, exemptions, process to acquire and revoke dormant status, and implications. Learn how dormant companies can conserve legal existence while complying with regulatory requirements.”
Under the purview of Company Law, a ‘dormant company‘ denotes a company that has been idle or conducted no considerable accounting transactions during a particular fiscal year. This notion facilitates the temporary conservation of a company’s legal existence even while it isn’t involved in active business operations. Below are some detailed insights about dormant companies:
Definition: A company can be designated as dormant if it has abstained from conducting any significant accounting transactions, encompassing both income and expenditure, during a fiscal year. However, dormant companies are permitted to engage in certain transactions like paying fees for maintaining their registered office, incurring compliance-related costs, or covering other expenses associated with statutory requirements.
Filing of Financial Statements: Despite its dormant status, a company is still mandated to draft and file its financial statements and annual returns with the Registrar of Companies (RoC) within stipulated timeframes. Given their inactive nature, the financial statements of dormant companies are typically more straightforward, as they wouldn’t portray any substantial business activities.
Exemptions from Certain Compliances: Dormant companies enjoy some relief from complying with specific provisions of the Company Law. For instance, they are exempt from appointing a statutory auditor unless they revert to being active companies. Furthermore, dormant companies are not obligated to hold board meetings and conduct general meetings, barring certain exceptional circumstances.
Procuring Dormant Status: To acquire “dormant status,” a company must submit an application to the RoC, expressing its intent to become dormant. The RoC might approve this status, provided the application meets their criteria and the company adheres to the stipulated requirements.
Reactivation of Dormant Company: Should a dormant company decide to restart its business operations, it must approach the RoC to revoke its dormant status. Once approved, the company is classified as active and is expected to fulfill all pertinent provisions and requirements as an active company.
Revocation of Dormant Status: If the RoC harbors reasonable suspicion that a dormant company is not complying with the prerequisites for maintaining its dormant status, it may issue a notice to the company and, if deemed necessary, withdraw its dormant status.
It’s crucial to remember that specific provisions and requirements concerning dormant companies can differ across jurisdictions. The points outlined above offer a general perspective; however, one should refer to the exact company law regulations and seek professional counsel to guarantee compliance with the relevant legal prerequisites when dealing with dormant companies.
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