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Conversion of Active Company to Dormant Company – Section 455, Companies Act 2013

Narendra Kumar

| Updated: Sep 10, 2019 | Category: Company Conversion

Dormant Company

In the Companies Act, 2013 the concept of the Dormant Company[1] was introduced under section 455. Dormant means inactive or inoperative company. The main ideology behind this concept that it helps the Companies which are not doing any business activity for the last two consecutive Financial year and don’t want their company to be struck off from the Registrar of Companies or on the other side to start a company for a future project or hold an asset/intellectual property, without any significant financial transaction then such company will also be termed as Dormant Company.

Why did the Company intend to obtain the dormant status of the Company?

Below are the points if the Company intended to obtain the Dormant Status:

  • To carry out the projects in the future.
  • To protect the Intellectual Property Rights.
  • For reserving the name of the Company.
  • To purchase the property in the name of the Company for carrying out the projects in the future.
  • Company which has not filed Financial Statement and Annual Return for the last two financial years.
  • The Company is not carrying out any business or any significant accounting transaction.
Notes: As per the definition of Dormant Company prescribed under the Companies Act, 2013 it means a Company where a Company is formed and registered under this Act for a future project or to hold the asset or intellectual property and has no significant accounting transaction, such a Company or an inactive Company may make an application to the Registrar

Explanation:

“Inactive Company” means a Company not been carrying any business or operation, or has not made any significant accounting transaction during the last two financial years or has not filed financial statements and annual return for the last two financial years.

“Significant accounting transaction” means 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 fulfil the requirements of this Act; and
  • Payments for maintenance of its office and records.

How the status of Dormant Company can be obtained?

A Company can obtain status through the following:

  • Company may itself obtain the status of dormant Company by making an application in the prescribed form as mentioned in the Companies Act, 2013.
  • The Registrar shall issue a notice to the Company if it has not filed the financial statements/Annual returns for two consecutive financial years.

Eligibility Criteria for obtaining the status of Dormant Company

The Following precondition is required to be fulfilled for making the application for the status of Dormant Company

  • There should be no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
  • There should be no prosecution has been initiated and pending against the company under any law;
  • The company is neither having any public deposits which are outstanding nor there is any default in payment thereof or interest thereon;
  • Company not having any outstanding loan, if there is any outstanding unsecured loan, the company may apply under this rule after obtaining the consent of the lender and enclosing the same with Form MSC-1;
  • There is no dispute in the management or ownership of the company and with respect to that certificate to be enclosed with Form MSC-1;
  • The company does not have any outstanding statutory taxes, dues, etc. to the Central Government or any State Government or local authorities, etc.;
  • The company has not made any default in the payment of workmen’s dues;
  • The securities of the company are not listed on any stock exchange within or outside India.
Company Registration

Procedure for Obtaining the Status of Dormant Company

  • Step 1:

Convey the Board Meeting with respect to that issue the Board Meeting Notice at least 7 days before the date of Board Meeting.

  • Step2:

Hold the Board Meeting and pass the resolution for obtaining the status of Dormant Company subject to the approval of the Shareholder Meeting.

  • Step3:

For convening the Shareholder Meeting, fix the date, day, time and venue and authorizing a director or any other person to send the notice to the Members.

  • Step 4:

Issue the Notice of Shareholder Meeting at least 21 days before the date of the Shareholder Meeting. The shorter notice of Shareholder Meeting can also be called if the consent of at least 95% of such part of the paid-up capital of the Company has given the consent for the same.

  • Step 5:

Hold the Shareholder Meeting, pass the special resolution for the same with the majority consent of the Shareholder.

  • Step 6:

After passing the Resolution, file the Form MGT-14 within 30 days from the passing of the special resolution along with certified a true copy of the resolution along with an Explanatory statement, or any other documents as required from time to time if any.

  • Step 7:

File Form MSC-1 with the Registrar of Companies along with prescribed fees and the Ministry of Corporate Affairs will issue the certificate in MSC-2.

The Registrar will maintain the register of Dormant Companies. If the Company remains Dormant Company for a period of consecutive five years then the Registrar shall initiate the process of striking off the name of the Company.

Conclusion

If the Company intending to do the business in the future or hold an asset/intellectual property, does not have any significant financial transaction or the Company has not filed the annual return for the two consecutive financial years then it can apply for obtaining the status of dormant company and for the same Company can make the application with the Registrar of Companies in the prescribed form. If you need any help with the process get in touch with us.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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