Article explains Concept of Dormant Company, What is Dormant Company?, Prior Conditions for Dormant Status, Compliance maintained by Dormant Company, Application for obtaining status of dormant company and Application for obtaining status of active from dormant.
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Concept of Dormant Company
Whenever a company is not doing any business activities for a long time period say 1-2 years the first thing which we decide is to close our business and the first option came in our mind is winding up, because no one wants to fulfill compliances for an inactive company. Winding up of a company means shut down a company on permanent basis or status of the company will not remain active and in future if we want to run our business then again we have to incorporate a new company and will go through with all compliance of company incorporation.
To avoid such situations, Company Law has given an option to change the status of company from ‘Active’ to ‘Dormant’, but the company will remain as ‘Active Company’.
What is Dormant Company?
Dormant Company is a company which is not carrying on any business or operation. As per Section 455 of the Companies Act, 2013, 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 of Companies for changing it’s status from active company to dormant company.
“Significant accounting transaction” means any transaction other than:-
- Payment of fees to the Registrar.
- Payments made by it to fulfill the regulatory requirements.
- Allotment of shares.
- Payments made for maintenance of office and records.
Prior Conditions for Dormant Status:-
- The company should not have been carrying on any business or operation, or 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.
- In case there is any unsecured loan in the Company then consent of the lender should be obtained.
- Statement of Assets and Liabilities should be obtained from Statutory Auditors of the Company.
- No dispute certificate should be obtained from the management or promoters of the Company.
The Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate in such form as may be prescribed to that effect. The Registrar shall maintain a register of dormant companies in such form as may be prescribed. In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.
Compliance maintained by Dormant Company
A dormant company will have to comply with certain compliance requirements, although these are very minimal. Listed below are the compliance requirements:
- A dormant company should file ”Return of Dormant Company” every year indicating the Company financial position duly audited by Chartered accountant in practice in Form MSC-3.
- A dormant company is required to convene at least one Board meeting in every six months.
A dormant company also shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed. 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 for maintaining compliance.
Application for obtaining status of dormant company
For the purposes of sub-section (1) of section 455, a company may make an application in Form MSC-1 along with such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 to the Registrar for obtaining the status of a Dormant Company in accordance with the provisions of section 455 after passing a special resolution to this effect in the general meeting of the company or after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of at least 3/4th shareholders (in value):
Provided that a company shall be eligible to apply under this rule only, if-
(i) no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
(ii) no prosecution has been initiated and pending against the company under any law;
(iii) the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
(iv) 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;
(v) there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;
(vi) 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.;
(vii) the company has not defaulted in the payment of workmen’s dues;
(viii) the securities of the company are not listed on any stock exchange within or outside India.
Application for obtaining status of active from dormant
If company that has been declared as “dormant” starts carrying out significant transactions, then within 7 days from the date of undertaking such transaction, the company will have to file an application with the ROC in form MSC-4 accompanied by a return in Form MSC-3 to get back the status active from the earlier status of dormant.
After considering the application, the RoC will issue a certificate in Form MSC-5 approving the change of status of the dormant company to active company.
Note: A company can continue in dormant status for a maximum period of 5 years. Before the expiry of 5 years, the company will have to apply for changing the status to Active, otherwise the name of Company shall be struck off by the ROC.
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