Process to Get Status of Dormant Company under Company Act 2013: All Details

Narendra Kumar

25 Sep, 2021

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.

What is Dormant Company?

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:

• Incorporated for future project;
• Hold an asset or intellectual property;
• Has no significant transaction;
• Is an inactive company.

Inactive company means the Company does not have any significant transaction or not carrying any business in last two financial years

The expression significant accounting transaction means any transaction other than below:

• Company paid fees to the Registrar;
• The company made payment to fulfill a requirement of Act.
• The company made payment to maintain the office.

The above transactions are not included in significant account transaction i.e. Dormant Company can make above payments.

Condition to be fulfilled before applying for the Dormant Company Status:

• The company shall not undergo any inspection, inquiry, or investigation or shall not initiate any prosecution against the company and pending under any court.
• The company shall not have any public deposits or interest and outstanding for payment.
• There should be an outstanding loan, secured or unsecured in Company. If there are unsecured loans then the consent of the lender should be obtained and enclosed along with the form.
• Any dispute or difference between the management and promoters of the company shall not be there and a certificate was issued to give effect is enclosed.
• The Company shall not have any outstanding tax dues.
• There shall not be any default in payment of its workmen’s dues;
• The Company should not be listed company.
• A dormant company may be either a public company or a private company or a one-person company.

Procedure for obtaining a status of Dormant Company:

• The Company shall call a Board Meeting to approve the following transaction:
• Authorise any director to make application for Dormant with ROC
• Confirm the date of EGM also approve the notice for the same.
• Appoint/Authorise the auditor/chartered account to issue a certificate.
• After conducting Board, call EGM of the Company and shareholder through special resolution shall approve the application for dormant companies status.
• File MGT-14 with required attachments (CTC of Special Resolution along with EGM notice) with ROC within 30 days of the Meeting.
• After the filing of an MGT-14 application for obtaining a status of Dormant companies shall be prepared in form MSC 1 and submitted to the ROC. MSC 1 shall have following attachments:
• CTC of Board Resolution approved;
• CTC of Special Resolution approved;
• Certificate from Auditor;
• Statement of Affairs duly certified by Chartered Accountant or Auditor of the company;
• In case the Company has filed annual return and financial statement of the Company that it shall be attached with application;
• In case of Company have any loan outstanding, consent of the lender;
• After considering the application and all the documents ROC shall issue system generated a certificate in form MSC-2.

Compliances required for Dormant Company:

• Annual return of the Dormant Company in Form MSC-3 shall be filed within 30 days of the end of the financial year
• A dormant company shall have a director as below: if a Company is:

1. Public company: minimum 3 director
2. Private Company: 2 Director
3. OPC: 1 Director

• A dormant company shall file a “Return of Dormant Company’s” annually, duly audited by a Chartered accountant in such form along with the fees prescribed under the act.
• The Dormant Company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever they allow or any change in the directorship.
• The Company shall hold at least one meeting of the Board of Directors in every half year. The gap between two meetings shall not be more than 90 days.

How does Dormant Company obtain a status of an Active Company?

• In accordance with the provisions of Section 455 of the Companies Act 2013, the applicant can file form MSC-4 along with fees to ROC to obtain the status of an active Company. The application shall be accompanied by the MSC-3 return of the financial year in which the application is being filed
• The Registrar on satisfaction may issue a certificate in MSC-5 approving the status as an active company.
• Following are some circumstances an application of a Dormant Company as an active company shall be filed:
• Dormant company omits to do any act mentioned in MSC-1 which affect the status of a dormant company, the director shall file within 7 days an application.
• If a dormant company fails to file an annual return for consecutive two financial years Register may ask to change the status of a dormant company.

Tenure of Dormant Company:

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.

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