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DORMANT COMPANY – AN OUTLOOK

DORMANT COMPANY – AN OUTLOOK


According to section 455 of Companies Act, 2013 Dormant Company is an inactive company which has not been carrying any business or has not made any significant accounting transaction in the last two financial years. 
i)    “inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;
ii)    “significant accounting transaction” means any transaction other than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any otherlaw;
 (c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.

Such company may make an application to the Registrar for obtaining the status of a dormant company. Concurrently, the Registrar may also suo-moto direct such a company for the status of a dormant company. The Registrar on consideration of the application allow the status of a dormant company to the applicant and issue a certificate in Form MSC-1&2 to that effect. The Registrar shall maintain a register of Dormant Companies under the portal maintained by the Ministry of Corporate Affairs.

A company, once identified as dormant, will need to maintain only a minimum number of Directors and pay some annual fees as prescribed in the Companies (Registration Offices and Fees) Rules, 2014. 

Such companies could be restarted at a later stage, without actually going through the administrative process of closing down the existing company by making an application.

 The dormant companies can become active by making an application.

 If the Dormant Company fails to comply with the requirements of the Section 455 of the Companies Act, 2013 the Registrar shall have the power to strike off its name.

Application for obtaining the status of Dormant Companies 

1.     Application for obtaining status of dormant company can be made only after obtaining special resolution approval of the                    shareholders or issuing notice to all the shareholders and obtaining consent of at least 3/4th of the shareholders in value terms;

2.    Company is required to make an application in form MSC-1 along with  such  fees as provided in the companies (Registration           Offices and Fees) Rules 2014 for the status of dormant company.

3.    ROC issues the certificate of status of dormant company in Form MSC-2 after considering the application submitted in form              MSC-1 .

Eligibility for obtaining the status of Dormant Companies

1.    No inspection, inquiry, or investigation has been ordered or taken up against the company OR no prosecution has been initiated        against the company and pending under any court.
2.    The company does not have any public deposits or interest thereon outstanding for payment
3.    The company does not have any public deposits or interest thereon outstanding for payment.
4.    There is no outstanding loan, secured or unsecured. If there are unsecured loans then consent of the lender should be obtained             and enclosed along with the form.
5.    There should be no dispute or difference amongst the management or promoters of the company and a certificate to that effect is        enclosed.
6.    The company does not have any outstanding tax dues either to central or state government or local authorities.
7.    The company has not defaulted in payment of its workmen’s dues.
8.    It is not a listed company.

Minimum numbers of directors for dormant company

    Public Company - three directors 
    Private Company – two directors 
    One Person Company- One Director
    The provision of the act in relation to the rotations of auditors shall not apply on dormant companies.


Return of Dormant Companies

A dormant company shall file an annual “Return of Dormant Company” in form MSC-3 which indicates the financial position of the company and which shall be duly audited by a chartered accountant in practice. This should be filed within 30 days from the end of each financial year. i.e. on or before 30th April every year.

APPLICATION SEEKING STATUS OF AN ACTIVE COMPANY

(1)    An application, under section 455, for obtaining the status of an active company shall be made in Form MSC-4 along with fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an active company is being filed. 
(2)    The Registrar shall initiate the process of striking off the name of the company if the company remains as a dormant company for a period of consecutive five years. 
(3)    The Registrar shall, after considering the application filed, issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.
(4)    When a dormant company does or omits to do any act mentioned in the grounds of application in Form MSC-1 submitted to Registrar for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within seven days from such event, file an application, for obtaining the status of an active company.
(5)    When the Registrar has reasonable cause to believe that any company registered as ‘Dormant Company’ under his jurisdiction has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under section 206 of the Act and if, after giving a reasonable opportunity of being heard to the company in this regard, it is found that the company has actually been functioning, the Registrar may remove the name of such company from register of dormant companies and treat it as an active company .

Our opinion

Introducing section 455 is a good initiative by the government. There are several companies who currently don’t carry on any active business but are intending to do the same in the near future. These companies are now unburdened from the annual compliances under the companies act, 2013 which will save the time and costs of these entrepreneurs.

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