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In General language, dormant company and the defunct company is the same but as per companies act both modes of the closure of a company has a different meaning which we will discuss in this article.
The concept of Dormant Company has introduced under the Companies Act, 2013. In a simple word, Dormant Company means an inactive Company.
Section 455 of the Companies Act 2013 deals with the provisions of Dormant Company. As per Companies act Dormant Company means a company which is formed or registered for the below objectives:
Such Company can file an application with a registrar to obtain the status as Dormant Company.
The word ‘Defunct’ means
A defunct company refers to an organization that has zero assets and zero liabilities and fails to begin a business within a year of its incorporation.
Such companies are considered useless as they are not providing any benefit to society.
As per the Companies Act,
2013, a defunct company is a company that is not involved in any business
activities. Such companies’ names get removed from the Register of Companies.
A defunct Company has now
fallen into the category of a dormant
company. The Government provides financial support to such companies.
Limited Liability Partnership in a Defunct Company
A partnership between two parties ends in a
company if the company becomes defunct. It is no longer considered active.
Also, the registrar may issue notice the Company who has not filed the financial statements or annual returns for two consecutive financial years to enter its name into registrar maintained for a dormant company.
To maintain the status of a dormant company, a company shall have a minimum number of directors and pay such annual fees as may be prescribed by the Registrar.
A dormant company shall have a director as below: if a Company is:
Dormant Company gets an advantage of fewer compliances cost as there are only minimal compliances applicable to the dormant company.
Dormant Company is not required to include the statement of cash flow in its financial statement.
Dormant Company shall hold only two board meeting in a year with a gap of 90 days in between the two company.
The auditors are not required to be rotated under the dormant company.
On 5th April 2017 vide circular the most awaited procedure Fast track Exit is activated. Section 248 of Companies Act 2013 deals with fast-track exit procedure. Strike Off mode was introduced by the MCA to give the opportunity to the defunct companies to get their names struck off from the Register of Companies
The Registrar may by its own strike off the name of a company on its own if:
The ROC shall send notice to the Company and all the directors of the Company stating his intention to remove the name seeks the representation of Company in 30 days.
The Company by itself can file an application to Registrar of Companies for striking off the name. The ROC shall satisfy him that all the amount due by the Company is discharged. ROC can also issue a show cause notice in case of default in filing returns or other obligations. After satisfaction, ROC shall issue a public notice and strike off the name of Company.
Following are the companies who cannot apply for fast-track exit:
As per Section 455 of the Companies Act 2013 the name of the company is entered in the register of dormant companies when the company is inactive (not carrying on business or operation) during the last two financial years. In other hand, when the company has failed to commence its business within one year of company incorporation or company is not carrying on any business or operation since last two immediately financial years and has not made any application within such period for obtaining the status of a dormant company under section 455,then the company is treated as defunct company and shall be entitled to go on strike off.
It can be interpreted that, as per the provisions mentioned ROC has the power to issue a notice to change the status of the Company from Active to Dormant or strike off of Companies after the trigger of above-mentioned conditions.
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