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Conversion of Dormant Company into Active Company

calendar02 Mar, 2020
timeReading Time: 4 Minutes
Conversion of Dormant Company

The concept of Dormant Company is newly introduced in the Companies Act, 2013. A Dormant Company is a Company, which is not carrying out any ‘accounting transaction’ and which is formed for a future project or to hold an asset or intellectual property. The Dormant Company can obtain the status of a Dormant Company by making an application to the Registrar of Companies (RoC). The Conversion of Dormant Company status can at any time be changed into Active Company.  In this article, the Conversion of Dormant Company into Active Company after availing successful company registration will be discussed.

What are the benefits of obtaining a Dormant Status for a Company?

The core policy of a Dormant Company is to invest now and shine later. The longer is someone exists, the higher you are valued. The primary purpose of retaining the dormant status of the company is that the company maintains its corporate status despite not carrying out business. The benefits obtained from Dormant Status are summarized below:

  • The company can voluntarily apply to Registrar of Companies (RoC) in e-form MSC-1, or
  • The Registrar can issue a notice to company who has not filed any Financial Statements/ Annual Returns for 2 consecutive years and can enter the name of such Company in Register of Dormant Companies.

What are the Procedural Formalities to get the Status of a Dormant Company?

The procedure followed for obtaining the status of a Dormant Company is as follows:

 status of a Dormant Company

Board Meeting

Fixing and convening a Board Meeting for approval from Board and also approving a notice for General Meeting.

General Meeting

In General Meeting approval of members of company is taken for making an application of Dormant Status of the Company. A special resolution is passed in General Meeting by the members. File Form MGT-14 within 30 days of passing the resolution in the General Meeting.

Filing Form MSC-1

File e-form MSC-1 to Registrar, i.e. filing for application of the dormant status of company.

Issue Certificate

Registrar will consider and approve the application. Hence, Registrar will issue a certificate in Form MSC-2 for the dormant status of the company. 

Maintain Register of Dormant Companies

The Registrar also has to maintain the Register of the Dormant Companies. The Register is maintained on the Ministry of Corporate Affairs (MCA)[1] website or any specified website.

What is the procedure followed for the Conversion of Dormant Company into Active Company?

In the following situations, the Conversion of Dormant Company into Active Company is done by the Registrar of Companies (RoC):

  • Conversion of Dormant Company into Active Company is done Voluntarily
  • Registrar of Companies does the conversion of Dormant Company into Active Company by Striking Off
  • Conversion of Dormant Company into Active Company is done when Dormant Company is functioning as an Active Company

In case if the Conversion of Dormant Company into an active company is done voluntarily, the following steps are followed:

  • The Dormant Company should make an application for conversion of Dormant Company status into an Active Company in Form MSC-4.
  • The fee as prescribed under Companies (Registration Offices and Fees) Rules, 2014, should also to be paid with an application filed for Conversion of Dormant Company into Active Company.  The MSC-4 should be accompanied by the return Form MSC-3 of the Dormant Company.
  • After considering the application filed, the Registrar can approve the application and issue a certificate in Form MSC-5, allowing the status of the Dormant Company to be an Active Company.

In case the Registrar Strike off the company, the following steps are followed:

  • If the company is in dormant status for 5 consecutive years, then the Registrar shall start the process of striking off name of such company from the Register of Dormant Companies. In this case, the applicant should apply for the Conversion of Dormant Company into Active Company, or the Registrar will voluntarily strike off the company from the Register of dormant Companies.
  • After considering the application filed, the Registrar can approve the application and issue a certificate in Form MSC-5, allowing the status of the Dormant Company to be an Active Company.

In case the Dormant Company is functioning as an Active Company, the following steps are to be followed:

  • Whenever a Dormant Company does any act mentioned in the grounds of the application Form MSC-1, affecting its status of Dormant Company. The Directors shall file an application for obtaining the status of an active Company within 7 days when this act was done.
  • Once the Registrar considers the application, then the Registrar can issue the certificate in Form MSC-5.
  • In enquiries, if the Registrar finds out that the company which is registered as a Dormant Company is functioning in actual and it is under his/her jurisdiction, then the Registrar can initiate proceedings against the Dormant Company.  

Conclusion

If a Company chooses a back seat for a good reason, then they can always restart the business whenever they want. So, being a dormant company, the company may not be doing business actively, but it is still considered as a Company in the eyes of the law. The Conversion of Dormant Company can always be done into Active Company according to the rules prescribed by the Companies Act, 2013. We at Corpbiz assist you with the procedure followed for the Conversion of Dormant Company into Active Company. Our professionals will ensure the successful completion of your work.  

Read our article: Change in Status of Company From Active to Dormant

Sakshi Sharda

Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.

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