Dormant Company: Procedure, Eligibility, Fees

Introduction

Where a company is formed and enrolled for a future task or to hold a resource or intellectual property and has no critical financial transaction, such company or an inactive company might make an application to the Registrar for acquiring a status of the Dormant Company.

In this blog, we will study about Dormant Company along with its process, eligibility and fees.

What is a Dormant Company?                                                      

Dormant Company implies a company which has not been continuing any business or activity, or has not made any critical accounting transactions during the last two monetary years, or has not documented financial statements and yearly returns during the last two financial years.

In simple words, “Dormant” signifies inactive or inoperative. Concept of Dormant Company was introduced under the Companies Act 2013, and it was not there earlier in the Companies Act of 1956. Section 455 of the Companies Act 2013 provides for the dormant company. As per this section, Dormant Company means inactive company.

Inactive Company

The “Inactive Company” means a company that has

• not carried on any business or activity, or
• has not made any significant financial transactions during the past two financial years, or
• has not completed financial statements and annual returns during the past two financial years.

“Important financial activity” means any transaction other than

• Payment of company fees by the Registrar;
• Payments made by it for the purposes of this Act or any other law;
• Allocation of shares to meet the requirements of this Act; and
• Fees payable for the maintenance of its office and records.

What are the benefits of Dormant Company?

The principle motivation behind procuring or keeping an organization’s remarkable position is to empower the organization to keep up with its corporate status regardless of whether it does any business.

The advantages got from that condition can be summed up under the accompanying headings –

• Company Name Protection – Intellectual property claimed by a dormant company incorporates a brand name of a company name. The company name is ensured with the goal that others are not permitted to exchange under the name of the dormant company.
• Future Project – A company might be shaped to get ready for a future task. This implies the plan of the advertisers to exchange and along these lines to keep the space name.
• Company History – While this isn’t the main advantage, by building up a company that began and later began a business, it tends to be said to have been grounded since its initiation despite the fact that it might have gone into business later. It assists the company with showing a superior picture to expected clients and/or loan specialists.

What is the eligibility to obtain status of dormant company?

The Company will be able to apply for the status of a Dormant Company if the following 8 conditions are satisfied:

• No investigations, inspections, or investigations have been ordered/taken/performed for the company.
• No prosecution has been instituted against the company under any law.
• The Company does not have arrears of public funds and does not pay taxes on it and its interest.
• The Company does not have outstanding loans whether they are secured or unsecured.
  If any outstanding loan exists, the company may apply after obtaining the lender’s approval and filing the same on the MSC-1 form.
• There is no dispute in the management/administration of the company and a certificate in this regard is attached to the MSC-1 form.
• The Company does not have any official fees, taxes, duties, or other charges payable to any CG or SG or local authorities, etc.
• The company did not fail to pay employees’ salaries.
• The security of any company is not registered on any stock exchange within or outside India.

One more necessity under the Companies Act (Miscellaneous) Regulations 2014, Rule 6 is that a dormant company should have at least 3 directors on account of a public company, 2 assuming it is private and one on the off chance that there is One Person Company. The Registrar then processes the application and approves the status of the dormant company in the form of MSC-2.

Documents required for obtaining status of Dormant Company

• The certified copy for the board resolution.
• The certified copy for the special resolution.
• Certificate from the auditor.
• A statement of affairs, duly approved by the auditor or chartered accountant.
• The Annual Return and the Latest Financial Statement.
• A certificate to the effect of declaring no dispute between the management or the ownership.

What is the procedure to obtain status of dormant company?

Following is the procedure to obtain status of dormant company:

• Convene a Board Meeting with two Directors in case of Private Company and 3 Directors in case of Public Company and 1 in case of OPC.
• Hold the Board meeting for getting the status of Dormant Company. Fix a date, place, and time for an Extra-Ordinary General Meeting of the Company to pass a special resolution.
• Issue notification recorded as a hard copy requiring the General Meeting of the Company proposing the goal, with an appropriate illustrative proclamation.
• Holding an Extra-Ordinary General Meeting and pass the Special Resolution.
• File Form MGT 14 within 30 days of passing the resolution.
• Further, company will make an application in Form MSC-1 alongside such fees as given in the Companies (Registration Offices and Fees) Rules, 2014 along with the documents as provided above as an attachment.
• Registrar will issue a certificate in MSC-2.
• The Registrar will maintain a register of Dormant Companies which is maintained on its official website or any other specified website.

Compliances made by the dormant company after obtaining status of dormant company

• A dormant company will keep a few numbers of directors.
• The dormant company will submit a “Return of Dormant Company” which is audited by a Chartered Accountant working on Form MSC-3 within 30 days from the end of each financial year.
• As far as Section 173 (5), the Dormant Company is needed to convene one meeting of the Board of Directors held each part of the schedule year and the gap between the two gatherings should not be less than 90 days.

Reactivation of Dormant Company

• The Dormant Company should make an application for conversion of Dormant Company status into an Active Company in Form MSC-4.
• The fees as recommended under Companies (Registration Offices and Fees) Rules, 2014, ought to likewise be paid with an application filed for Conversion of Dormant Company into Active Company. The MSC-4 ought to be accompanied by the return Form MSC-3 of the Dormant Company.
• Subsequent to considering the application documented, the Registrar can approve the application and issue an certificate in Form MSC-5, permitting the status of the Dormant Company to be an Active Company.

Final words

Dormant (inactive) company is a relatively a new concept under the Companies Act 2013. However, it gives a edge to begin a future project or hold an asset without having much accounting transactions. It is an innovative concept as it allows one to take a stoppage or a break from business and again activate it.

To know more about this newly introduced concept, give us a call.