Unlocking Dormancy: Conversion of Dormant Company To Active Company

Tired of your dormant company sitting idle and generating no business activity? It’s time to breathe new life into your business! Imagine the possibilities of conversion of dormant company into active one where opportunities abound and success awaits you. With a simple and seamless process, you can unlock your company’s potential and bring it back to life. Get ready for a journey of growth, profitability and renewed energy as you convert your dormant company into an active force in the business world.

Overview

Under the Companies Act 2013, a new group of companies called dormant companies was recognized. To obtain dormant company status, a company or dormant company can apply to a registrar that is incorporated and registered under the Companies Act 2013 for a future project or holding of an asset or intellectual property and that has no significant accounting operations.

What is a Dormant company?

A Dormant company is one that does not have:

• Been undertaking or carrying on any activity,
• Carrying out any accounting operations,
• Saved financial statement
• Previous two years financial returns report.

Before explaining the process of conversion of a Dormant Company to an Active Company, it is important to know how a Company acquires Dormant Company status and what exemptions a dormant company uses.

How to obtain the status of Dormant Company?

A company can get dormant company status either:

1. Suo-Moto (Voluntary): A company can apply Suo-Moto to the Registrar of Companies for ‘Dormant company’ status in Form MSC-1 along with the fee as specified in the Companies (Registration Authorities and Fees) Rules, 2014.
2. ROC can declare a company a Dormant company; The Registrar can issue a notice to the company if the company has not filed financial statements or annual returns for two consecutive financial years. The ROC shall enter the name of such a company in the register maintained for companies that have acquired the status of dormant Company.

Trading by a Dormant company

A Dormant company cannot carry on any kind of trading activity or earn any kind of income, including:

• Buying and selling of goods and services
• Renting or buying property
• Employing employees
• To pay directors’ salaries
• Managing investments and receiving dividend payments
• Issuance of dividends to the shareholders of the company
• Earning interest or
• Paying bank charges
• Legal payments or
• Accountancy fees from business bank accounts

A dormant company that carries out any such activities will forfeit its Dormant trading status and will be required to prepare full statutory accounts.

What are the exemptions enjoyed by the Dormant companies?

• Dormant companies do not contain cash flow statement in its financial statements.
• The provision on the rotation of auditors does not apply.
• Dormant Company status remains for five consecutive years.
• Fewer legal requirements apply, resulting in lower compliance costs.
• The company can revive and operate as it intends to in the future.
• To protect the interests and reputation of the independent trader.

Procedural formalities to get the status of Dormant company

• Board meeting: Determining and convening the meeting of the board of directors for approval by the board of directors, as well as approval of the invitation to the general meeting.

• General Meeting: At the general meeting, the consent of the company members to the application for suspension of the company is accepted. Special resolutions are adopted by members of the general meeting. Form MGT-14 within 30 days of the adoption of the resolution of the general meeting.

• Application form MSC-1: Submit the MSC-1 electronic form to the registrar, i.e., the application for dormant company status.

• Issue a certificate: The registrar will review and approve the request. So the registrar will issue a certificate in Form MSC-2 for the dormant status of the company.

• Maintain a registry of dormant companies.: The registrar must also maintain a record of the dormant company. The register is maintained on the website of the Ministry of Corporate Affairs (MCA) or any other specific website.

Reactivation of Dormant Company

• Dormant companies must file an application for the conversion of Dormant company status to active company status by filling MSC-4 form.
• The fees recommended under the Companies (Registration Authorities and Fees) Rules, 2014, should also be paid along with the application for conversion of a dormant company into an active company. The MSC-4 should be accompanied by the Dormant Company Return Form MSC-3.
• After reviewing the application as for conversion, the registrar can approve the application and issue a certificate in Form MSC-5 that allows the conversion of Dormant Company status to be an active company.

Documents required for conversion of Dormant Company to active company

1. Certified copy of the board resolution approving the application for active status (Mandatory)
2. Return Form MSC-3 with the following documents:

• A certified copy of the board resolution authorizing the submission of this statement is required.
• A duly certified statement of financial situation by a chartered accountant in practice (mandatory)
• Any other optional accessories it deems appropriate.

Benefits of conversion of Dormant Company to active company

Following are the benefits of conversion of Dormant Company to active company;

• Leveraging Existing Resources: Transforming a dormant company allows for leveraging existing assets such as intellectual property, client databases, and brand recognition. This can significantly reduce the cost and time associated with starting a new business.
• Faster Market Entry: An active company can quickly re-enter the market and resume operations, saving time and effort compared to setting up a new business entity from scratch.
• Increased Credibility: By reviving a dormant company, you can maintain the company’s established reputation and credibility. This can be beneficial when dealing with clients, suppliers, and potential investors.
• Potential cost savings: Reviving a dormant company usually requires fewer upfront costs compared to starting a new business. Some expenses, such as registration fees, may be reduced or waived, providing potential cost savings.

Process of conversion of Dormant Company to active company

In the following situations, the conversion of a Dormant company into an active company is carried out by the Registrar of Companies (RoC):

• The conversion of a dormant company to an active company is done voluntarily.
• The Registrar of Companies converts a Dormant Company into an Active Company by striking it off.
• The conversion of a Dormant Company to an Active Company is done when the Dormant Company operates as an Active company.

In the event that the transformation of a dormant company into an active company is carried out voluntarily, the procedure is as follows:

• A Dormant Company should file an application for conversion of Dormant Company status to Active Company status on Form MSC-4.
• The fee prescribed under the Companies (Registration Authorities and Fees) Rules, 2014, should also be paid along with the application for conversion of a dormant company into an active company. The MSC-4 should be accompanied by the Dormant Company Return Form MSC-3.
• After considering the submitted application, the registrar may approve the application and issue a certificate in Form MSC-5, which will allow the status of the dormant company to be that of an active company.

In the event that the registrar dissolves the company, proceed as follows:

• If the company has been dormant for five consecutive years, the registrar will initiate the process of deleting the name of such a company from the dormant company register. In this case, the applicant should apply for the conversion of a dormant company into an active company, or the registrar will voluntarily delete the company from the register of dormant companies.
• After considering the submitted application, the registrar may approve the application and issue a certificate in Form MSC-5, which will allow the status of the dormant company to be that of an active company.

In the event that the dormant company is operating as an active company, the following steps should be followed:

• Whenever a dormant company takes any action specified in the justification for the application for Form MSC-1 that affects its status as a dormant company, The directors shall apply for the status of an active company within 7 days of the execution of this act.
• Once the Registrar has considered the application, he may issue a certificate in Form MSC-5.
• In the case of inquiries, if the registrar finds that a company that is registered as a dormant company is actually functioning and is within his jurisdiction, the registrar can initiate proceedings against the dormant company.

Final words

Transforming a dormant company into an active company requires careful planning, strategic restructuring and compliance with legal obligations. By unlocking the potential of a dormant company, entrepreneurs can leverage existing resources, save time and costs, and renew their market presence. With the right approach and dedicated efforts, a dormant company can once again transform into a thriving and profitable business.

In case of any query regarding conversion of Dormant company to active company feel free to connect with our legal experts at Legal Window at 72407-51000.