A company which is a registered entity but is not currently active is called as a Dormant Company. Section 455(1) of the Companies Act, 2013 has introduced the concept of a dormant company.
1. A Company incorporated under Companies Act, 2013[1] and not having any significant accounting transaction.
“Significant accounting transaction” hereby means any transaction other than—
- Any payment of fees by the company to Registrar;
- Any Payments which is to be made to carry out the requirements of this Act or any other law;
- Shares have been allotted to carry the requirements of this Act; and
- Any Payments made for the maintenance of its office and records
2. A Company Incorporated for purpose of holding an asset;
3. A Company Incorporated for a future project; or
4. Any Inactive Company
“inactive company ” means any company which has not made any significant accounting transaction during the last two financial years, or not been carrying on any business or operation of the Company has not filed financial statements and annual returns for the last two financial years;
Eligibility for a Dormant Company
A Company which has not been in working for several financial years and also does not intends to do in future for five consecutive years can apply for Dormant Company Status.
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Conditions to be satisfied for Dormant Status
The following conditions should be satisfied before applying for Dormant Status:
- There should not be any inspection/ inquiry /investigation going against the company;
- The company should not have any public deposits which are outstanding, nor the Company should not have made any default in payment of interest thereon;
- There should not be any prosecution pending with the company under any law;
- The company should not have any default for the payment of workmen’s dues;
- The company should not have any outstanding statutory taxes, dues, duties etc. which is to be paid to Central Government or any State Government or any local authorities etc.;
- The application has not been made with a motive to deceive the creditors or to defraud any other person;
- Securities of the company should not be listed on any stock exchange in India or outside India;
- A company should not have any outstanding loan, Secured and Unsecured-if company has any Outstanding Unsecured Loan, then NOC should be obtained from the lender, and then it can apply for status of DORMANT lender. NOC is required to be attached in the Form which is required to be filed with ROC.
- There should not be any discussion in the Management or Ownership with such Company;
Exemptions to a Dormant Company:
The following exemptions are provided to a Dormant Company:
- Cash Flow Statement is not required-A company, in a status of Dormant is not required to show Cash Flow Statements in Company’s Financial Statements.
- Board Meetings – Dormant Company, has to convene only one meeting of Board of Directors in each half of the calendar year. There should be a gap of not less than ninety days between two board meetings.
- Rotation of directors shall not apply to dormant companies.
Procedure for Conversion of Active Company to Dormant Company
1. Convene Board Meeting- to call EGM
- Authorization to the director to make an application for Dormant with ROC
- Issue Notice of General Meeting
- Engage a Chartered Accountant to issue a certificate
2. Hold Extra Ordinary General Meeting
- Pass Special Resolution
3. File E-form MGT-14 with ROC.
Attachment:
- CTC of Special Resolution
- Notice of EGM along with Explanatory Statement.
4. After filling of form MGT-14, we need to File Form MSC-1 with the registrar
Attachments:
- CTC of Board Resolution.
- CTC of Special Resolution.
- Memorandum of Association
- Auditor’s Certificate.
- Statement of Affairs duly certified by Auditor of the company.
- Latest Annual Return and Financial Statements of the Company.
- Certificate in reference with no dispute in the management or ownership.
- If there is any Loan outstanding, Consent of lender needs to be attached.
5. Certificate of Status of dormant Company:
The Registrar will issue a certificate in Form MSC-2 allowing the status of a Dormant Company to the applicant, after considering the application filed in Form MSC-1.
Company can Do Following Business Transation in the Period of Dormant
- Company can pay fees to the Registrar;
- Any Payments for the fulfil of any requirements of this Act or any other law;
- Allotment of shares as per the requirements of this Act; and
- Any Payments made for maintenance of its office and records
Return of Dormant Companies
- A dormant company needs to file a declaration annually duly certified by a Chartered Accountant in practice in Form No. MSC-3 within 30 days from the end of each fiscal year, indicating the financial position.
How can a company apply for seeking active status?
- An application has to be filed if a company wants to get Active status with ROC in e-form MSC-4.
- Registrar, after considering the application filed shall issue the certificate in Form MSC-5 to the applicant allowing status of an active company.
- If company is carrying any “Significant transaction” during the dormant period, the directors need to file an application with ROC in e-form MSC-4 within seven days from such event, for obtaining the status of an active company.
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