Becoming Dormant Company as per Companies Act 2013

I strike the idea to write about dormant company when one of my client asked can we become inactive company under companies Act 2013 since we are not doing any business and we feel cumbersome having Board meetings preparation of minutes, and then, I advised them that there are some eligibility criteria to fulfill so that you obtain Dormant status but the company has to prepare minutes for one Board Meeting, then he laughed and said that’s ok.

Read below to know more about dormant status and how to obtain active status when operative.

Now Entrepreneurs who want to hold an asset or intellectual property under the corporate shield for its usage at a later stage have excellent advantage to become dormant for a specific period of time.

Let’s understand this with an example, if entrepreneur wants to purchase a fixed asset now for its future project at a comparatively lesser price, he may do the same through dormant company so that he can use the land for its future project.

If entrepreneur have inoperative/ inactive company and wants to retain inactive company for some time and do less compliance then, he/ she can obtain dormant status.

What Companies Act 2013 says about Dormant Company?

Section 455 of the Companies Act 2013,

“where a company is formed and registered under this Act for a future project or a future project or to hold an hold an asset or intellectual property and “has no significant accounting transaction”, such a company or An Inactive Company An may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.”

Types of entities which can get the status of Dormant;

a.       A public company or

b.      a private company or

c.       one person company

There are many inactive companies, which do not start any business, for a long time from the date of registration as for instance any business for creation of intellectual property or for a future project and has no significant accounting transaction, they can apply for Dormant status and get the benefits of less compliances.

What is Inactive Company?

“Inactive Company” means a company which

A.    has not been Carrying on Any Business or operation, or

B.     has not made any Significant Accounting Transaction During The Last 2 years or

C.     has not filed Financial Statements and Annual Returns during the LAST TWO FINANCIAL YEARS.

What is the meaning of Significant Accounting Transaction?

“Significant Accounting Transaction” means

A.    Any transaction other than- Payment of Fees by a company to the Registrar.

B.     Payments made by it to fulfill the requirements of this Act or any other law.

C.     Allotment of shares to fulfill the requirements of this Act.

D.     Payments for maintenance of its office and records.

Above Mention Transactions are excluded from Significant Accounting Transactions.

Conditions to be fulfilled in order to apply for Dormant Status:

·         No inspection, inquiry or investigation has been ordered or taken up or carried out against the company.

·         The company is neither having any public deposits which are outstanding nor is the company in default in payment thereof or interest thereon.

·         No prosecution has been initiated or pending against the company under any law.

·         The company has not defaulted in the payment of workmen’s dues.

·         The company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.

·         The application has not been made with an objective to deceive the creditors or to defraud any other person.

·         The securities of the company are not listed on any stock exchange within or outside India.

·         The company is not having any outstanding loan, whether Secured and Unsecured- But if company has any Unsecured Loan Outstanding Unsecured Loan

·         There is No Dispute in the Management or Ownership of The Company. A certificate in this regard required to taken from Management. Such Certificate required to be attached in the Form which requires filing with ROC.

If the above conditions are fulfilled only then the company may apply for status of DORMANT only after obtaining NOC from the lender. Such NOC required to be attached in the Form which is required to be filed with ROC.

Steps to be followed to get Dormant Status:

Step 1	Board Meeting- to call EGM covering authorization to Director to make application for Dormant with ROC, issue of notice of EOGM
Step 2	Extra Ordinary General meeting
Step 3	File MGT 14 (attachments; SR, and Notice of EOGM)
Step 4	File MSC 1 Attachments: §  CTC of Board Resolution. §  CTC of Special Resolution. §  Auditor’s Certificate. §  Statement of Affairs duly certified by Chartered Accountant or Auditor(s) of the company. §  Latest Financial Statement and Annual Return of the Company is mandatory to attach In Case The Same Is Filed To Registrar. §  Certificate regarding no dispute in the management or ownership. §  Consent of lender, if any loan is outstanding.

After getting certificate of Dormant Company, the company is required to file certain mandatory forms with the Registrar of Companies:

·         A dormant company shall file a declaration annually in Form No. MSC-3 within thirty days from the end of each financial year.

·         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.

·         If company wants to get Active status to be file e-form MSC-4 with ROC, then gets active company status.

·         If company carrying any “Significant transaction” “during the dormant period, the directors shall within 7 days from such event, file an application with ROC in e-form MSC-4, for obtaining the status of an active company.

 The company may carry following business transaction in the period of Dormant:

(a) Payment of fees by a company to the Registrar.

 (b) Payments made by it to fulfill the requirements of this Act or any other Law.

 (c) Allotment of shares to fulfill the requirements of this Act and

 (d) Payments for maintenance of its office and records.

OTHER PROVISONS:

·         A dormant company shall have such Minimum Number of Directors. {A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company}

·         File such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status.

·         A Dormant Company need not enclose cash flow statements in its annual accounts.

·         A Dormant Company is required to convene at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. Section 173(5)

 A Dormant Company formation can prove useful when an individual wishes to stop trading for a specific period of time.

For more details, contact CS Neha Seth at csnehaseth@gmail.com or call us at 9871903449