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Dormant companies

The companies Act, 2013 has recognized a new set of companies called as dormant companies. As per 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.

Explanation appended to section 455(1) says that for the purposes of this section

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 2 financial years, or has not filled financial statements and annual returns during the last 2 financial years

Significant accounting transaction’’ means any transaction other than

a. Payment of fees by the company to the Registrar;

b. Payment made by it to fulfill the requirements of this act or any other law;

c. Allotment of shares to fulfill the requirements of this act; and

d. Payments for maintenance of its office and records.

Obtaining dormant status for Company

A Company can obtain status as Dormant Company by:

1. Suo Moto Application: A company which meets the above criteria can apply suo-moto to Registrar of companies for the status of a ‘Dormant Company’ in Form MSC-1 along with such fees as provided in the companies (Registration offices and fees) Rules, 2014 after complying with the provision of Rule 3 of the companies (Miscellaneous) Rules, 2014.

2. Dormant by ROC: In case of a company which has not filled financial statements or annual returns for 2 financial years consecutively, the Registrar may issue a notice to such company and enter the name of such company in the register maintained for Dormant Companies.

Conditions for obtaining the 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 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.

The privileges and exemptions enjoyed by a dormant company

1. Financial Statements of a Dormant Company may not include the Cash Flow Statement.

2. Dormant Company shall be deemed to have complied with the provision relating to the board meeting if at least one meeting of board of directors has been conducted in each half of the calendar year and the gap between two meetings is not less than 90 days. [Section 173(5)].

3. The Provision of rotation of Auditors is not applicable in case of the dormant company.

4. Companies can enjoy the status of Dormant Company for a period of 5 Consecutive Years.

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May 2024