Change in Business

Conversion of Dormant Company into Active Company

Under Companies Act 2013, a new set of companies called as dormant companies has been recognized. For obtaining the status of the dormant company, a company or an inactive company may make an application to the registrar which is formed and registered under the Companies Act 2013  for a future project or to hold an asset or intellectual property^[1] and which has no significant accounting transaction.

What is an inactive Company?

Inactive company is the company which has not –

• Been carrying on any business or operations,
• Made any  accounting transactions,
• Filed financial statements,
• Annual returns, during the last two financial years.

Before explaining the process of conversion of Dormant Company into Active Company, it is important to know how the Company obtains the status of the Dormant Company and what exemptions are availed by the dormant Company.

How to obtain the status of Dormant Company?

A Company can obtain the status of Dormant Company either by-

1.Suo-Moto (Voluntarily) – A Company can apply Suo-moto to the registrar of Companies 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.

2. ROC can declare a company as a Dormant Company – The registrar may issue a notice to a company, In case of a Company has not filed financial statements or annual returns for 2 financial years consecutively. The ROC enters the name of such company in the register maintained for the companies which have obtained the status of Dormant Company.

What are the conditions of obtaining the status of Dormant Company?

For obtaining the status of Dormant Company following conditions must be fulfilled-

1. No inspection, inquiry has been ordered and no prosecution has been initiated and pending against the Company which has applied for obtaining the status of Dormant Company.
2. The company is neither having any public deposits which are outstanding, further; the company has not made any default in payment and interest thereon.
3. The company is not having any outstanding loans (Secured and unsecured), Outstanding statutory taxes, dues payable to the Central Government.
4. No default in the payment of workmen’s dues.
5. The Securities of the Company is not listed on any stock exchange within or outside India.
6. No dispute in the management/ownership of the company. Certification in this regard is enclosed with the form MSC-1.

What are the exemptions enjoyed by the Dormant Company?

1. In the case of Dormant Company, the financial statement does not include the Cash flow statement.
2. No applicability of a provision of rotation of auditors.
3. The status of Dormant Company remains for  5 consecutive years.
4. Applicability of less statutory compliances which results in lower statutory compliance cost.
5. The company can revive and operate as it intends to use in the future.
6. To protect the interest and reputation as a sole trader.

Conversion of Dormant Company to Active Company-

For conversion of Dormant Company to Active Company, a company is required to follow the following procedure-

1. A Dormant Company shall make an application for obtaining the status of an active company in Form MSC-4 along with the fees as provided in the Companies (Registration Offices and Fees) Rules, 2014. Further, Form MSC-4 shall 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.
2. If the company remains as a Dormant company for a period of Consecutive 5 years, the registrar shall initiate the process of striking off the name of the company.
3. After considering the application filed, the Registrar shall issue a certificate in Form MSC-5 by allowing the status of an active company to the applicant.
4. When a company who has applied for obtaining the status of Dormant company omits to do any act mentioned in the grounds of application in form MSC-1 submitted to the Registrar for obtaining the status of dormant company,  the directors shall within 7 days from such event, file an application, for obtaining the status of an active company.
5. Once the application is considered by the ROC, the ROC issues a certificate in Form MSC-5 along with the status of an active company.
6. The company shall file return or returns of allotment and change in the directors in the manner and within the time specified in the Companies Act 2013.
7. In case of Inquiry, if it’s found that the company has been functioning in actual and also where Registrar has reasonable cause to believe that under its jurisdiction and the dormant company has been functioning in any manner directly or indirectly, the ROC may after giving reasonable opportunity of being heard initiate proceedings for inquiry under section 206 of the Companies Act 2013.