Dormant Company Status: Eligibility, Forms, and Procedure

In businesses experiencing fortunate in operations, managing legal status without active performances is crucial. The Dormant company offers a solution, permitting companies to preserve their businesses while inactive. In this article, we will provide you with details of the Dormant Company’s status, eligibility criteria, procedures, and required forms. Furthermore discussed the dormant company sections along with how to apply for the dormant company status.

Table of Content

• Overview of Dormant Company Status
• What are the compliances for Dormant Company Status?
• Step-by-step procedure to obtain the status of the Dormant Company
• Takeaway

Overview of Dormant Company Status

The Dormant Company Status is defined under the provisions of Section 455 of the Companies Act, 2013. It is a registered enterprise, which is inactive with necessary accounting transactions, and intellectual property, and exists in holding an asset, for a future project. It has applied to the Registrar to attain dormant status and successfully attained the Dormant Company Status.

A Dormant Company Status can either be a private company, or one person company (OPC) or a public company. The inactive company means a company i.e.:

• Has not created any specific accounting transactions from the past two financial years; or
• Has not been carrying on any performance of the business; or
• Has not filed annual returns or financial statements from the past two years.

Specific Accounting Transaction means those transactions created by the Company except transactions given below:

• Companies make payments to fulfill the needs of the act or any other law;
• Maintenance of offices and record payments;
• The company has made payment to the Registrar; and
• Allotment of shares to fulfill the needs of the act.

All kinds of transactions apart from those discussed above, will be taken as specific accounting transactions. In case a company has created only the above-discussed transactions in the past two years, then that company will fail under the definition of “Inactive Company”.

What are the compliances for Dormant Company Status?

Here are certain compliances for the Dormant Company Status that are required to be fulfilled by the dormant company. These are as follows:

• The Dormant Company is needed to hold at least one meeting of the board members every half year. There will be no more than 90 days gap between the two meetings.
• The Dormant Company shall constantly file the returns of allotment and change in directors, whenever the company allots any security to any individual or there is any amendment in the company’s directors.
• No need to enclose the cash flow statements in their annual accounts.
• A Dormant Company is required to have a minimum number of directors as per prescribed under the Company Act, 2013, which are in a private company there will be two directors, if OPC then 1, and in a public company, there needs to be 3 directors.
• A Return of Dormant Company needs to file in Form MSC-3 yearly, such as indicating the financial status duly audited by a Chartered Accountant along with the annual fee as mentioned under the Companies (Registration Offices and Fees) Rules, 2014 within 13 days from the end of every financial year.
• The Rotation of auditors provisions of the Companies Act, 2013 do not apply to the dormant companies.
• The Company’s tenure to remain dormant is for 5 consecutive financial years. In case the company remains dormant for more than five years, then the Registrar shall start the process of striking off the company’s name from the Records, which leads to removal.

Step-by-step procedure to obtain the status of Dormant Company

The step-by-step process to become the status of Dormant Company:

• Need to conduct a board meeting in a company;
• The company has to conduct a general meeting in a company;
• File a form MGT-14
• File Suo-Moto Application: A Company has to fulfill the above-discussed criteria, then may apply for the suo-moto to ROC for the status of the “Dormant Company” in the Form MSC-1 along with the prescribed fees mentioned under the Companies (Registration Offices and Fees) Rules, 2014 after complying with the Rule 3 of the Companies (Miscellaneous) Rules, 2014.
• Dormant by ROC: If a company has not filed the annual returns or financial statements for consecutive two financial years, the ROC must issue a notice to the company and enter that company in the list of registers maintained for the dormant companies. Therefore, it is not required that the company applies for the status of the Dormant company status; the ROC has the power to suo moto to amend the status of a company into a dormant company status.

In case the company fails to do compliance as per the provision of the dormant company section 455 of the Companies Act, 2013 read with the Companies (Miscellaneous) Rules, 2014. Then the Registrar can strike off the name of a dormant company status from the list of dormant companies.

Takeaway

Through the above-mentioned information, the Dormant Company status provides a viable solution for entities, that are temporarily inactive, however, wish to manage their legal enterprises. While the dormant company status offers relief from certain statutory responsibilities, it is significant for enterprises to remain compliant with all regulatory needs. The Dormant Company Status provides the practical option for companies to seek and preserve the business status during inactiveness, permitting them to resume functions smoothly when the time is in favour of the company.