Dormant Company under Company Act, 2013 and Why to Obtain Dormant Status?

Introduction

A dormant company is a company that has been formed and registered but has not made any important financial transactions. It may be kept for future use or as an asset or intellectual property. According to the Companies Act, 2013, a company can apply to the Registrar to officially become a dormant company by following a specific process.

Also:

• Dormant company can apply to revert to a company with an active status.
• For more than five consecutive financial years, a company cannot be classified as dormant.

Advantages of Dormant Company under Company Act, 2013

• A company may be founded to prepare for a future undertaking. This indicates that the promoters want to trade and hence preserve the domain name.
• A Trademark of a Company Name is among the intellectual property owned by a dormant company. Others are not authorized to trade using the name of the dormant company since it is protected.
• It assists the company in projecting a more positive image to potential consumers and/or lenders.

Why Obtain Dormant Status?

A Firm might become Dormant for a variety of reasons, including

• It is possible to register a company as inactive when the owners are planning to launch it and want to reserve a name for it.
• When a company’s owners want to restructure it, they can apply for Dormant Status.
• If the business owner needs to take an extended period off for reasons such as illness, travel, maternity leave, sabbatical, etc.

Eligibility Criteria for Dormant Status

• No inspection, inquiry, or investigation against the company is ordered or carried out. In addition, no criminal charges have been filed or are pending against the corporation in any court of law.
• In the name of the corporation, there are no outstanding payments on public deposits or interest.
• A certificate stating that there is no dispute or disagreement among the company’s management and promoters must be enclosed.
• There should be no arrears in the payment of the company’s laborers’ dues.
• There should be no outstanding loans, secured or unsecured, on the corporation. If the loan is unsecured, the lender’s permission should be included with the form.
• In the name of the company, there are no outstanding tax obligations to the federal, local governments, or state government.
• The company should not be listed on a Stock Exchange in India or elsewhere.

The process to register Dormant Companies in India

• To begin a process, the first thing that is needed is to register a Dormant Company under the Companies Act, 2013. Call a board meeting to set a date and location for an Extraordinary General Meeting (EGM) of the members to pass a special resolution (worth at least three-fourths of the total value). During this board meeting, the director might submit a general application to ROC for inactive status. For the public meeting, you must publish a notice. In addition, a Chartered Accountant or Auditor must be hired to issue a certificate at this general meeting.
• After that, there is an Extraordinary General Meeting. After that, a special resolution is adopted. The exact copy of the individual decision, as well as the notice of the extraordinary public meeting with an explanation. This is due to the ROC receiving an attachment to e-form MGT-14.
• To establish a dormant status for the firm, the corporation must first apply form MSC-1 with the accompanying attachments:

1. The board resolution’s identical certified copy.
2. For the special resolution, an exact certified copy is required.
3. The auditor’s signature on the certificate.
4. A statement of affairs that has been reviewed and authorized by an auditor or a chartered accountant.
5. The Annual Return and the Most Recent Financial Statement are required attachments.
6. A certificate stating that there is no disagreement between the management and the owners.
7. If there is an outstanding debt in the company’s name, the lender’s consent must be appended.

Conclusion

A Dormant Company is an Inactive company that has not done any business or made significant financial transactions during the previous two financial years, as defined by section 455 of the Companies Act. The annual return for a dormant company can be filed using a simplified form MSC-3 once it has been registered as a dormant company. In addition, the number of Board Meetings held by the Company is reduced, as is the compliance load.

FAQs on Dormant Company under Company Act, 2013

1. Is it possible for a Dormant Firm to file for strike-off?

A company that has applied to the ROC for ‘Dormant’ status is ineligible to seek strike-off. To apply for a strike-off, the company must first attain the ‘Active’ status.

2. What is the Difference between Dormant and Inactive Company?

The Companies Act of 2013 established the notion of a dormant company. In a nutshell, a dormant company means an inactive company. The provisions of the Dormant Company are addressed under Section 455 of the Companies Act 2013.

3. How long may a business remain Dormant?

A company can only be declared “Dormant” for five years in a row before the ROC begins the process of removing the company’s name from the register.

4. How can I Reactive the company’s Dormant status?

An application in Form MSC-4 can be submitted to the Registrar to reinstate the active company status. The firm will be restored to active status by the issuance of MSC-5 if the Registrar is pleased with the application.