Dormant Company (How to take Status of Dormant Company) Eligibility and Forms Required (How to make Dormant Company Active)
There are some instances where a company is being incorporated but the company does not want to carry on the business at the moment due to some reasons the major reason for such a change is that it gives the company the liberty to start its business activities after a few years rather than incorporating a new company at that time, (so that the existence of the company is shown as older in the market) thus providing cost and time advantage to the company. A company may also choose to temporarily shut down its operations due to adverse market conditions and decide to commence its operations at a future date. In all such cases, a company may make an application to the ROC to change its status from “active” to “dormant”.
Dormant companies are also known as inactive companies.
DORMANT COMPANY ITS DEFINANTION:
A dormant company under Section 455 of the Companies Act 2013 is a registered entity that is inactive with no significant accounting transactions, existing for holding an asset, intellectual property, or for a future project, and has applied to the Registrar to obtain dormant status and successfully obtained the status of Dormant Company.
A dormant company may either be a public company or a private company or a one person company (OPC).
For the above purposes, ‘inactive company’ means a company which:
(a) has not been carrying on any business or operation; or
(b) has not made any significant accounting transaction during last two financial years; or
(c) has not filed financial statements and annual returns during the last two financial years.
‘Significant Accounting Transaction’ means any transaction made by the company except transactions mentioned below:
(a) payment of fees by a company to the Registrar;
(b) payments made by the company to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) Payments for maintenance of its office and records.
All the transactions, apart from the above mentioned transactions, will be considered as significant accounting
transactions. If a company has made only the above mentioned transactions in the last two financial years, then that company will fall under the definition of ‘Inactive Company’.
COMPLIANCES FOR DORMANT COMPANY
There are certain compliances which needs to be fulfilled by the dormant company. These are mentioned below:
1) Company needs to have minimum number director as required by Companies Act, 2013 i.e. at least 3 Directors in case of a Public Company, 2 for Private Company and 1 for OPC.
2) The company shall continue to file the returns of allotment and change in directors, whenever the company allots any security to any person or there is any change in the directors of the company.
3) The Dormant Company is required to hold at least one meeting of the Board of Directors in every half year. The gap between two meetings shall not be more than 90 days.
4) The maximum tenure for which a company can remain dormant is 5 consecutive financial years. If a company remains dormant for more than 5 years, the Registrar commences the process of striking off the name of the company from the Records, i.e. the company will be removed.
5) A dormant company is required to file a “Return of Dormant Company” in Form MSC-3 annually, interalia, indicating financial position duly audited by a Chartered Accountant in Practice along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year.
6) No need not enclose cash flow statements in its annual accounts.
7) The provisions of the Act in relation to the rotation of auditors are not applicable to dormant companies.
PROCEDURE TO OBTAIN THE STATUS OF A DORMANT COMPANY
Suo-Moto application : A company which meets the above criteria can apply suo-moto to ROC for the status of a “Dormant company” in Form MSC-1 along with such fee 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.
Dormant by ROC : In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the ROC shall issue a notice to the company and enter the name of such company in the register maintained for dormant companies.
Hence, it is not always the company which applies for the status of the dormant company; even the ROC is empowered suo moto to change the status of a company into a dormant company.
The Registrar shall initiate the process of striking off the name of the company, if the company remains as a dormant company for a period of five consecutive years.
Maximum period for which the company can be in the dormant status is five consecutive years. Before completion of five years as dormant company, such a company may apply for activation or strike off.
Where a company fails to comply with the requirements of Section 455 of the Companies Act, 2013 read with Companies (Miscellaneous) Rules, 2014, the Registrar can strike off the name of a dormant company from the Register of dormant companies.
Eligibility:
i. Any inspection, inquiry or investigation has been ordered or taken up or carried out against the company.
ii. Any prosecution has been initiated and pending against the company under any law.
iii. There are public deposits which are outstanding or the company is in default in payment thereof or interest thereon.
iv. There is any outstanding loan, whether secured or unsecured. In case the company has any outstanding unsecured loan, the company must apply for the status of a dormant company after obtaining the concurrence or approval of the lender which is required to be enclosed with Form MSC-1.
v. If company has any Outstanding Unsecured Loan then the company may apply for status of Dormant only after obtaining NOC from the lender. Such NOC is required to be attached in the Form which is required to be filed with ROC.
vi. There is no dispute in the management or ownership of the company. A certificate in this regard is required to be taken from the management. Such a certificate is required to be enclosed with Form MSC-1 which is required to be filed with ROC.
vii. There are outstanding statutory taxes, dues, duties, etc., payable to the Central Government or any State Government or local authorities etc.
viii. There is default in payment of its workmen’s dues.
ix. The Company is a listed company within or outside India.
Step by step procedure for obtaining the status of Dormant Company:
1 Hold a Board Meeting
2 Hold General Meeting:
3 Filing of Form MGT-14:
4 Filing of Form MSC-1:
5 Issue of Dormant Company Status Certificate: by ROC if documents filed are found correct.
PROCEDURE TO OBTAIN THE STATUS OF ACTIVE COMPANY FROM DORMANT COMPANY
1. Hold board meeting:
2. Prepare return in Form MSC-3:
3. File e-Form MSC-4:
4. Certificate for active company: by ROC if documents filed are found correct.
Conclusion
By understanding the eligibility criteria and procedural requirements outlined in the Companies Act 2013, companies can effectively navigate the process of transitioning between active and dormant status, ensuring compliance with regulatory obligations. Whether opting for dormant status to reserve existence for future ventures or seeking to revive an inactive company, adherence to legal guidelines is crucial for maintaining corporate compliance and governance.
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