Dormant Company

Meaning of Dormant Company

1. As per Section 455 of the Companies Act, 2013, a company which has not been carrying out any business or has not had 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 may apply to the Registrar for granting of the status of a dormant company.

Significant Accounting Transaction for this purpose shall mean any transaction other than–

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

What are the conditions to be fulfilled for acquiring a dormant status?

• No inspection, inquiry or investigation should have been ordered or taken up or carried out against the company.
• No prosecution should have been initiated and pending against the company under any law.
• The company should neither have any public deposits which are outstanding nor should it be in default in payment thereof or interest thereon.
• The company should not have any outstanding loan, whether secured or unsecured.
• There should be no dispute in the management or ownership of the company and a certificate in this regard should be enclosed with Form MSC-1.
• The company should not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.
• The company should not have defaulted in the payment of workmen’s dues.
• The securities of the company should not be listed on any stock exchange within or outside India.
• A dormant company should have a minimum number of 3 directors in case of a public company, 2 in case of private and one in case of a One Person Company. [Companies (Miscellaneous) Rules 2014, Rule 6]

How to get status of Dormant Company

The below-mentioned steps are followed while granting/acquiring a dormant status:

1. The Company must pass a Special Resolution in the general meeting of a company or notify its shareholders and obtain the consent of at least three-fourths of shareholders in value.

2. The Company must file an application through From MSC – 1 to the Ministry of Corporate Affairs.

3. Upon satisfaction, the Registrar will issue the certificate of Dormant Company.

The Registrar may also declare a company as dormant upon suo moto action as well if it meets the criteria.

The Act also empowers the Registrar to strike off the name of the company from the Register if it remains dormant for five consecutive years.

Benefit of Dormant Company

The benefits derived from such a status may be summarized under the following heads –

1. Protection of the Company Name

2.  To revive and operate a company you intend to use in future.

3. Provision of Act in relation to the rotation of Auditors shall not apply on Dormant Company.

4. To convene only one Board Meeting in each half year of a calendar year and gap between the two meetings is not less than 90 days.

Return of Dormant Company

A dormant company shall file a “Return of Dormant Company”, inter-alia, indicating financial position duly audited by a chartered accountant in practice in form MSC-3 along with such annual fee within a period of 30 days from the end of financial year.

Once dormant, can it become active again?

The Act provides for converting a dormant company into an active company, for which an application under Section 455(5) must be filed, seeking the status of an active company. The said application shall be made in Form MSC-4 together with the prescribed fees and also with a return in Form MSC-3 with respect to the financial year in which the application seeking active status is being filed. As per Rule 8 of the Companies (Miscellaneous) Rules 2014, the Registrar shall issue a certificate recognizing the active status of the company under Form MSC-5.

In case the dormant company does or omits to do an act under the Grounds of application in Form MSC-1 (submitted while seeking dormant status), the directors have a duty under the Act to file an application under Rule 8(1) for obtaining active-company status, within 7 days of such an act or omission.