Dormant Company
Dormant company
Dormant company means a company which is an inactive company in the records of the Registrar of Companies and which is not carrying out any business activity and has applied to the Registrar of Companies to change its status in the register of companies maintained by the Registrar of Companies from “Active Company “to “Dormant Company A company can become dormant immediately after its registration or after a few years of its incorporation. There are many reasons why a company changes its status from “active “to “dormant”. Major reason for such a change is when a company is to start its business activities after few years owing to a variety of reasons, it may make application to the Registrar of Companies to change the status of the company to “dormant”. Dormant companies are also known as inactive companies
- Inactive Company means a company which:
(a) is not carrying on any business or operations; or
(b) has not made any significant accounting transaction during last two financial years,
(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 below transaction:
(a) payment of fees by a company to the Registrar;
(b) payments made by 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 above mention transactions in last two year then also that company will fall under definition of Inactive Company.
- OBTAINING DORMANT STATUS
A Company can obtain status as Dormant Company by suo-moto or ROC can declare a company as Dormant.
- Suo-Moto application: A company which meets the above criteria can apply suo-moto to Registrar of Companies (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 two 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.
Hence, it is not always the company which applies for the status of the dormant company, even the Registrar is also empowered to suo moto convert 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 consecutive five years.
- Legal framework for Dormant Companies
- Application for Dormant Company Before the end of 5 consecutive years Change in
by the applicant status of company by – either from “Dormant”
- Suo Moto change in the to “Active” or “Dormant” to “Strike off”
status of the company.
Maximum period for which the company can be in the dormant status is five consecutive years. A company cannot be in the dormant status for more than five years. Before completion of 5 years as dormant Company, such company have to 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.
- Procedure to obtain the status of a Dormant Company
The Act read with the Rules stipulates the following procedure to be followed by a company for obtaining status as a ‘dormant company’:
- The company shall call a board meeting to fix day, date, time and venue for General Meeting of the members of the company to pass resolution for making application to the ROC to obtain status of a dormant company.
- The company shall obtain Statement of affairs from the Auditor of the company. The statement of affairs shall give the financial position of the company at the time of passing resolution in the shareholders meeting.
- The company shall hold the General Meeting at the appointed time, place and date as per the notice calling the said meeting. The notice shall propose the resolution as a special resolution.
- The company shall pass a special resolution for obtaining the status of a dormant company and authorizing the director(s) to make application to ROC 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).
- After passing the special resolution, the company shall file e-form MGT-14 with ROC for filing special resolution.
- After filling of form MGT-14, the company shall file Form MCS-1 with the ROC along with the copy of the special resolution, copy of statement of affairs, declarations by the directors and other necessary documents.
- On being satisfied with the merits of the application, the ROC shall issue certificate in Form MSC -2 on confirming the application.
- Prerequisite for obtaining the status of Dormant Company:
The Registrar shall not grant the status of a dormant company if:
(a) any inspection, inquiry or investigation has been ordered or taken up or carried out against the company
(b) any prosecution has been initiated and pending against the company under any law
(c) there are public deposits which are outstanding or the company is in default in payment thereof or interest thereon;
(d) there are outstanding loans, whether secured or unsecured.
(e) The company is not having any outstanding loan, whether Secured and Unsecured- But 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 required to be attached in the Form which is required to be filed with ROC.
(f) There is No Dispute in the Management or Ownership of The Company; A certificate in this regard required to taken from Management. Such Certificate required to be attached in the Form which is required to be filed with ROC.
(g) there are outstanding statutory taxes, dues, duties etc. payable
(h) there is default in payment of its workmen’s dues
the Company is a listed company.
- BENEFITS / EXEMPTIONS PROVIDED TO A DORMANT COMPANY
By obtaining the status of a dormant company, the company enjoys the following exemptions:
(a) Dormant Company shall hold only two board meetings in a year with a gap of 90 days in between the two company.
(b) Dormant Company is not required to include the statement of cash flow in its financial statement.
(c) The provision of rotation of auditors is not applicable in case of the dormant company.
(d) Dormant companies enjoy the advantages of lower statutory compliance cost as there are few statutory compliances applicable to dormant company as compared to active company
(e) Dormant status is an advantage to promoters who want to hold an intellectual property or an asset under the corporate shield for its usage at a later stage.
(f) Companies can enjoy the status of dormant company for a period of 5 consecutive years
- COMPLIANCE REQUIREMENTS BY DORMANT COMPANY
The Registrar maintains the register of Dormant Companies.
- A dormant company shall have such Minimum Number of Directors. {A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company}
- In order to retain the status of the dormant company , such a company is required to file “Return of Dormant Company” in form MSC -3 annually, inter-alia, indicating financial position, duly audited by a chartered accountant in practice along with such annual fee as provided in the Companies
- Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year
- A Dormant Company need not enclose cash flow statements in its annual accounts.
- A Dormant Company is required to convene at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. Section 173(5)
- The provisions of the Act in relation to the rotation of auditors are not applicable to dormant companies
- Company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company
- LEGAL FRAMEWORK DEALING WITH THE PROVISION OF SEEKING THE STATUS OF ACTIVE COMPANY FROM DORMANT COMPANY
Section 455 of the Companies Act 2013 read with Rule 8 of the Companies (Miscellaneous) Rule, 2014 lays down the provisions for seeking the status of active company from dormant company. An application for obtaining the status of an active company from dormant company is required to be made before the end of five consecutive years from the date of becoming a dormant company. In case the application for obtaining the status of an active company from dormant company is not made before the end of five consecutive years from the date of becoming a dormant company, the name of the company is struck off from the register of companies maintained by the Registrar of companies.
Moreover, if any company has contravened any of the conditions mentioned in the grounds of application for obtaining the status of dormant company, such company should within seven days of such contravention, file an application for obtaining the status of an active company. The Registrar can take action to remove the company from the list of dormant companies, after carrying out an enquiry and after giving a notice and giving a reasonable opportunity of being heard and if it finds out that the company has contravened the conditions for granting the dormant company status.
- Procedure to obtain the status of an Active Company from Dormant Company
The dormant company shall follow the below procedure for obtaining status of an active company on its own:
(a) An application for obtaining the status of an active company is required to be made in Form MSC-4 along with fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 which should be accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an active company is being filed.
(b) The Registrar after considering the application filed for obtaining the status of the active company from dormant company shall issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.
The Registrar of Companies shall in following cases change the status of the dormant company to active company:
(a) Where a dormant company does or omits to do any act mentioned in the grounds in the application made for obtaining status of a dormant company and such act or omission affects its status of dormant company, the directors of such a company are required to file an application within seven days from such event for obtaining the status of an active company.
(b) Where the Registrar has reasonable cause to believe that any company registered as ‘dormant company’ under his jurisdiction has been functioning in any manner, directly or indirectly affecting the status of dormant company, Registrar can initiate the proceedings for enquiry.
Companies Act 2013 and if, after giving a reasonable opportunity of being heard to the company in this regard, it is found that the company has actually been functioning; the Registrar can remove the name of such company from register of dormant companies and treat it as an active company