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.
What is a 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), 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:
- Fee paid to the Registrar for registration;
- Necessary fees for fulfilling the requirement under Companies Act, 2013;
- Fulfilling the requirement of allotment of shares;
- Transactions made for the maintenance of registered office and records.
Procedure for obtaining the Status of Dormant Company
The listed procedure shall be followed by an applicant (for public, private or one-person company) to obtain the status of Dormant Company are:
- As per Section 455(1) of Companies Act, 2013, a company shall make an application through Form MSC-1 with a fee as prescribed under the Companies (Registration Offices and Fees) Rules, 2014 to Registrar to Companies (RoC).
- A special resolution shall be passed in a general meeting of the company, or consent of not less than 3/4 shareholders shall be obtained before filing the application for obtaining status of Dormant Company. The consent or passed
- A certified copy of board resolution for obtaining status of dormant company ( BoD Meeting);
- Certified copy of the special resolution for obtaining status of dormant company (General Meeting);
- Audit report and certificate
- A duly certified Statement of affairs by the CA or Auditor of the company;
- No Objection Certificate (NOC) from the regulatory authority( if governed by any regulator);
special resolution shall be submitted along following documents:
- Updated Financial Statements and annual returns shall be submitted with Form MSC-1
- A company is eligible to make an application only, if-
- There must be no standing order against the company for inspection, inquiry or investigation;
- No cases have been initiated under the provision of law against the company;
- The company should not have defaulted in making payments or interests and have any public deposits outstanding;
- No outstanding instalment of the loan, either secured or unsecured. If there is an outstanding unsecured loan, a company is eligible to make application only after obtaining the concurrence of the lender;
- A certificate stating that no dispute between the management and owner of the company has to be summited along with Form MSC-1;
- The company must not have any tax dues;
- Hasn’t default in disbursing the workmen’s salary;
- The securities are not listed on any stock exchange in India or outside;
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.]
Compliance after Obtaining Status of Dormant Company
Minimum number of Director
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:
- Public company – three directors,
- Private company – two directors, and
- One Person Company – one director.
Return of Dormant Companies
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).
Benefits of Obtaining Status of Dormant Company
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:
- Protects the name of the company.
- Future Projects of the company can be started at any time.
- A dormant company is created to hold the fixed asset of the company or intellectual property.
- Lesser compliances for closure and strike-off process.
- Easy reactive status for starting business again.
- Dormant Company is not liable to pay taxes as long as they are inactive.
- No Re-incorporation cost.
Different Forms to be Summited
To obtain the status of dormant company, different forms are filed are:
- MSC-1 (Application for obtaining status of a dormant company)
- MSC-2 (Certificate by Registrar for grant of status of a dormant company)
- MSC-3 (Return of dormant companies)
- MSC-4 (Application for seeking the status of an active company)
- MSC-5 (Certificate by Registrar for grant of status as an active company)
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