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In 2013, the Government of India introduced provisions for the classification of a company as dormant in the Companies Act, 2013, which was previously not available under the earlier Act. A company waiting for better market conditions to earn profits or stopping business activities for a short period and restarting at a later stage due to financial crunch. These ideas constructed a space for providing legal recognition to Dormant Company.
An existing registered company that hasn’t continued business for the last two years or failed to submit the financial statements of the last two financial years shall be deemed to be a non-performing company. Section 455 of the Companies Act, 2013 provides company or inactive company to make an application to the Registrar of Companies (RoC)[1], where a company is registered or created for future projects, or to hold any particular asset or intellectual property and a company/firm which do not have any significant accounting transaction under the company’s name.
The provision also defines significant accounting transaction, which allows certain transactions to be excluded under significant accounting transaction; such transactions are:
The listed procedure shall be followed by an applicant (for public, private or one-person company) to obtain the status of Dormant Company are:
The Registrar, after verifying and considering the filed application Form MSC-1, shall issue a certificate allowing the status of a Dormant Company (in Form MSC-2).
[It is to be noted that above-provided list of documents is not exhaustive, RoC may ask for the documents as and when required for granting the status of dormant company.]
According to Section 455(5) of the Act and the rules in the Companies (Miscellaneous) Rules, 2014, a company shall have a minimum number of directors for:
A Return of Dormant Company shall be annually filed stating the audited financial position of the company in Form MSC-3 within 30 days from the end of the financial year (Rule 8(1) of the Companies (Miscellaneous) Rules, 2014).
A dormant Company has the unique feature of remain inactive or non -operational. An owner of Dormant Company always has the opportunity to restart the business at any given time instead of starting from scratch. Some major benefits of obtaining status of Dormant Company are:
To obtain the status of dormant company, different forms are filed are:
A company can apply for a dormant company that has not performed any business activity or has not made significant financial transactions in the last two financial years. The company’s objective to obtain dormant status shall not be to commit fraud against creditors and shareholders.
Read our Article: Difference Between Dormant Company and Defunct Company
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