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Dormant Company

Dormant company is a new concept introduced in the Companies Act 2013 which was not there in the earlier Act of 1956. However, the concept is there in the United Kingdom under English Law. Section 455 of the Companies Act 2013 spells out about the dormant company. According to this section, the Dormant Company means inactive or inoperative company.

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Eligibility criteria for registering as dormant company  

Points to make your decision easy

A company can apply for and become a dormant company, only if the following criterias are satisfied:

  • No inspection, inquiry or investigation has been ordered or taken up or carried out against the company.
  • No prosecution has been initiated and pending against the company under any law.
  • The company neither has any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon.
  • The company is not having any outstanding loan, whether secured or unsecured: Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1.
  • There is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1.
  • 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 company has not defaulted in the payment of work men’s dues.
  • The securities of the company are not listed on any stock exchange within or outside India.

Documents required for the “Dormant Company”

  • The exact certified copy for the board resolution.
  • The exact certified copy for the special resolution.
  • The certificate from the auditor.
  • A statement of affairs, duly approved by the auditor or chartered accountant.
  • The Annual Return and the Latest Financial Statement.
  • A certificate to the effect of declaring no dispute between the management or the ownership.

For the purposes of this section, the clarification appended to section 455(1) states that

The inactive company ” means a company that has not carried on any business or activity, or has not made any significant financial transactions during the past two financial years, or has not completed financial statements and annual returns during the past two financial years.

  1. Important financial activity ’’ means any transaction other than
  2. Payment of company fees by the Registrar;
  3. Payments made by it for the purposes of this Act or any other law;
  4. Allocation of shares to meet the requirements of this Act; and
  5. Fees payable for the maintenance of its office and records.

Procedure for obtaining the status of the company as dormant

Step 1. First, you must convene a board meeting to set a time and place for the regular meeting of the members to pass a special resolution (at least 3/4 per value). The director may make a general request for a dormant position with the ROC at this board meeting. You must issue a public meeting notice. Also, you should hire a Chartered Accountant or Auditor to issue a certificate to this general meeting.

Step 2. Next, an extraordinary general meeting takes place. After that, a special decision is passed. An exact copy of the individual’s decision and a notice of the extraordinary public meeting with an explanatory statement. This is because the attachment to the e-form MGT-14 is included in the ROC.

Step 3. Next, the company must apply on the MSC-1 form and attach the following attachments to determine the company’s status:

  • Certified copy of board decision.
  • Certified copy of the special resolution.
  • Certificate from the auditor.
  • A statement of news, duly approved by the auditor or chartered accountant.
  • You must attach a Return Return and Recent Financial Statement forcibly.
  • A certificate stating that there is no dispute between management or ownership.
  • If there is any loan in the company, the lender’s permit must be included.

Compliance to be made by the Company after obtaining the status of the Dormant Company

  1. A dormant company will keep a small number of managers.
  2. The dormant company will submit a “Return of Dormant Company” audited by a Chartered Accountant working on Form MSC-3 within 30 days from the end of each financial year.
  3. In terms of Section 173 (5), the Dormant Company is required to convene at least one meeting of the Board of Directors held each part of the calendar year and the gap between the two meetings is not less than 90 days.

Benefits of Dormant Company

The immediate question that arises when you understand what a dormant company means is this – why would anyone create a company and register it to declare it dormant? The main purpose of acquiring or maintaining a company’s outstanding position is to enable the company to maintain its corporate status even if it does not do any business.

01.

Company Name Protection

Intellectual property owned by a dormant company includes a trademark of a company name. The company name is protected so that others are not allowed to trade under the name of the dormant company.

02.

Future Project

A company may be formed to prepare for a future project. This means the intent of the promoters to trade and therefore to keep the domain name. A good example of this as mentioned in Ramaiya is a company that has acquired a lease but is awaiting further permits before starting a business.

03.

Company History

While this is not the most important benefit, by establishing a company that started and later started a business, it can be said to have been well established since its inception even though it may have started its own business later. It helps the company to show a better image to potential customers and / or lenders.

When to apply for a dormant status?

In terms of section 455 of the Companies Act, 2013, a company that has never engaged in any business or has not had a significant transaction may apply to the Registrar for the position of a dormant company. The definition of a provision means “significant accounting transaction” and “an inactive company.”

The relevant section of the provision reads as follows:

“Definition For the purposes of this section,

  1. “Unemployed company” means a company that has not conducted or operated a business, or has not performed significant accounting functions in the last two financial years, or has not submitted annual financial statements and returns during the last two financial years;
  2. “Important Accounting Activity” means some other transaction than-
  • Payment of company fees by the Registrar;
  • Payments made by it for the purposes of this Act or any other law;
  • Allocation of shares for the purposes of this Act; and
  • Office fees and records. ”

Therefore, if a company makes any transaction that does not fall within the four headings mentioned above, it is likely to lose its dormant position.

According to renowned author Ramaiya, a newly registered company can apply to a dormant company if it has not done any business or operation since its inception, without submitting tax returns to the Registrar of Companies or other payments complying with the terms of the Company Act or any other law. 

How to get the status of Dormant Company

How do you find the status of an Unemployed Company?

The steps mentioned below are followed during the granting / finding of dormant:

  1. A company must submit a Special Decision at a general meeting of the company or notify its shareholders and obtain the approval of at least three quarters of the shareholders.
  2. The Company must apply from From MSC – 1 to the Department of Cooperatives and pay the prescribed fee under the Companies Act (Registration and Finance Offices), 2014.
  3. Upon satisfaction, the Registrar shall issue a Certificate of Unemployment Company. (Note that the Registrar must be satisfied that the company complies with the requirements set out in Section 455 and the relevant Rules before issuing a certificate.)
  4. The registrar will keep a register of unemployed companies.

An existing company that has not had a significant transaction or continued business with any business for the past two years or has not submitted its financial statements or annual returns for the past two financial years / two years shall be deemed to be a non-performing entity for Section 455. -suo fire. The Act also empowers the Registrar to remove a company name from the Register if it remains inactive for five consecutive years. This is in contrast to the UK situation where a company is allowed to remain inactive for an indefinite period of time. However, such a provision could invite trouble and also tend to be misused in the Indian business environment which is slowly moving towards a financially friendly economy.

Conditions should be met by obtaining dormant status

Term 3 of the Companies Act (Miscellaneous) Regulations 2014 sets out several conditions that a company must meet before it can gain the status of a dormant company.

The conditions set out under these Rules are discussed below.

  • No inspections, investigations, or investigations should have been ordered or conducted or conducted against the company.
  • No prosecution had to be initiated and awaited by the company under any law.
  • The Company must not have any public deposits unpaid and must not be liable for payment or interest on it.
  • The company should not have any outstanding loans, whether they are secured or unsecured.
  • There should be no dispute in the management or ownership of the company and a certificate in this regard must be submitted on Form MSC-1.
  • The company should not have any official taxes, fees, duties, etc. Payable to the Central Government or any State Government or local authorities etc.
  • The company should not have failed to pay its employees’ salaries.
  • Company security should not be listed on any stock exchange within or outside India.

Another requirement under the Companies Act (Miscellaneous) Regulations 2014, Rule 6 is that a dormant company must have a minimum of 3 directors in the case of a public company, 2 if it is private and one if there is One Private Company.

How to get the status of “Dormant Company”?

Step 1

Fill in the simple checklist

Step 2

Preparing the Documents

Step 3

Filing of Form MGT-14

Step 4

Filing of Form MSC-1

Step 5

Certificate of Dormant Company

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