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The Companies act 2013 has introduced new provision called Dormant Company. This concept is also known by profession as Asset Shielding Concept.
This is an advantage to the promoter who holds assets or intellectual property for later usage. For instance, the promoter can buy land at a lesser price through the dormant company for its future project.
According to data, there is much dormant company exist at present which is incorporated into a future project or to hold only IPRs or assets. Certain business may not be able to start their business due to their nature of business for a long period, such company may be an Inactive Company.
Construction Companies/ Real Estates companies Incorporate New companies to Hold Land/ Properties for future projects. With this concept, they can obtain a status of the dormant company and purchase property/land in that company. Dormant company id beneficial for them as there are fewer compliances required which results in less cost on compliance.
As per the Section 455 of the Companies Act 2013[1] the dormant company means a company which is formed or registered for the below objectives:
Inactive company means the Company does not have any significant transaction or not carrying any business in last two financial years
The above transactions are not included in significant account transaction i.e. Dormant Company can make above payments.
Dormant companies can enjoy status as Dormant companies for consecutive 5 years. On completion of 5 years, Registrar shall initiate the process of striking of a name of the Company.
Read our article:Importance of Digital Signature Certificate or DSC’s in Personal and Business Transactions
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