Procedure To Obtain Status Of Dormant Company

Procedure To Obtain Status Of Dormant Company

A company – a registered entity but currently inactive is called a Dormant company. In other words, when a company is formed and registered for a future project or to hold an asset or intellectual property and has no significant accounting transaction, as per Section 455 of the Companies Act 2013, such entity may upon application to the Registrar as stipulated in the provisions of the Act obtain the status of a Dormant Company.

What is a Dormant Company?

An existing registered company which has not continued business for the last two years has no significant accounting transaction and has not filed its Financial Statements or Annual Returns for the last two financial years shall be deemed to be inactive company.

Significant Accounting Transaction means any transaction apart from :

  • Fee payment by a company to the Registrar.
  • Payment made by the company to fulfil the requirements of this Companies Act or any other law
  • Share allotment to fulfil the requirements of this Companies Act
  • Payments for maintenance of its office and records

If the company has been registered or created for future projects or holds any particular asset or intellectual property, then such companies can make an application to the Registrar of Companies (RoC) as per Section 455 of the Companies Act, 2013 in a prescribed manner to attain the status of a Dormant company.

Conditions required before applying for Dormant Company status

Any company can submit its application to attain the dormant company status if the following requirements are met

  • There is no initiation of the prosecution and/or pending investigation against the company in any court of law.
  • There are no outstanding payments on public deposits or interests, in the name of the company.
  • No outstanding loan on the company – secured or unsecured. In the case of an unsecured loan, the lender’s consent is a must.
  • A certificate to the effect of no dispute or difference among the company’s management and promoters.
  • No outstanding tax dues to the Central, state government or local authorities against the company’s name.
  • No default in the payment of the company’s employees.
  • The company is not listed on the stock exchange – within or outside India.

Procedure to obtain the Dormant Company status

The below-listed procedure needs to be followed by an applicant (for public company, private company, or one-person company) to obtain the status of Dormant Company:

  • Convene a Board Meeting with two Directors in the case of a Private Company, three in the case of Public Company and one in the case of One Person Company (OPC).
  • The applicant must hold the board meeting for getting the status of a Dormant Company. This should be followed by fixing a date, place, and time for an Extra-Ordinary General Meeting (EGM) of the Company to pass the special resolution to attain the dormant status.
  • Once the special resolution is passed, the applicant must file Form MGT 14 within 30 days of passing the resolution.
  • The company should then file an application in form MSC-1 enclosing the following attachments to attain a dormant status for the company:
  • The board resolution’s certified copy.
  • The special resolution’s certified copy.
  • The certificate obtained from the auditor.
  • A statement of affairs, duly approved by the auditor or the CA.
  • The applicant must attach the Annual Returns and the Financial Statements from the last two years.
  • A certificate declaring no dispute among the management or the ownership.
  • A certificate thereby stating no outstanding loans in the name of the company –the consent of the lender must be attached.

Once all the above-mentioned documents are submitted, the Registrar, after verifying and considering the filed application Form MSC-1, should issue a certificate allowing the status of a Dormant Company (in Form MSC-2).

Benefits of Dormant Company status

A dormant Company has the unique feature of remaining inactive or non-operational. The owner of such an entity can restart the business at any given time instead of starting from scratch. Some of the important benefits of obtaining the Dormant Company status are:

  • Companies’ names can be kept protected.
  • The dormant company can hold the company’s fixed assets or intellectual property.
  • Minimal compliance for closure.
  • Simple procedure to gain the reactive status for starting the business again.
  • Not liable to pay taxes if inactive.

Provisions for the dormant company

The following provisions are allowed for a dormant company:

  • A dormant company can have a minimum Number of Directors.
  • File documents and pay the annual fee as may be prescribed to the Registrar to retain its dormant status.
  • A dormant company need not enclose cash flow statements in its annual accounts.
  • The dormant company is required to convene a minimum of one Board Directors Meeting in each half of a calendar year and the gap between the two meetings should not be less than 90 days.
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