Dormant Companies Under Companies Act

Dormant Company

Applicable Provisions: – Section 455 of the Act read with Rule 3, 4, 5, 6 and 7 of Companies (Miscellaneous) Rules, 2014

This is a new initiative of Ministry of Corporate Affairs to introduce the concept of Dormant Companies, as it was not there in Companies Act, 1956 , whereby Companies which are not carrying on any significant accounting transaction for a period of two years can apply to Registrar of Companies for getting declared itself as Dormant Companies. In today’s economic environment, a lot of Companies are formed for the purpose of holding any assets particularly real assets or any IPR or for a future project and such Company just keeps on complying with the laws even if no actual business is being done or transacted.  Another name for this concept can be Asset Shielding Concept Under Companies Act 2013 as a Dormant Company offers excellent advantage to the promoters who want to hold an asset or intellectual property under the corporate shield for its usage at a later stage.

After commencement of Companies Act, 2013 requirement of Compliances has been increased. Therefore it’s difficult to continue with Status of Active Company ,if the company is not working  because maintenance of company is expensive under companies Act, 2013 .If the companies are not working than Companies then there are two options to save cost:
1. Strike off Company (Under Section_560 of Companies Act, 1956 with FTE scheme)
2. Get Dormant Status of Company (Under Section 455 of Companies Act 2013).

The below provisions are framed for dormant companies :
The section 455 of the Act gives power to the Registrar of companies to declare a company as a dormant company. As per sub section 1 of section 455 of the Act, where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in Form no. MSC-1 along with such fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 and in such manner as may be prescribed for obtaining the status of a dormant company.

S. NoCOMPANIES

APPLICATION MADE BY :

OPC AND SMALL COMPANY (In Rs.)

 

OTHER THAN OPC AND SMALL COMPANY (In Rs.)
1.Authorised capital:

i) upto Rs 25 lakhs

ii) Above Rs.25 Lakhs upto Rs.50 Lakhs
iii) Above Rs.50 lakhs upto Rs.5 crore
iv) Above Rs.5 crore upto Rs.10 crore
v) Above  Rs.10 crore

 

2000

5000

10000

15000

20000

 

1000

2500

N/A

N/A

N/A

2.Company limited by guarantee not having share capital2000N/A

 

An inactive company has been described as a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

And “significant accounting transaction” means any transaction other than the following–

(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.

The Registrar on consideration of the application allow the status of a dormant company to the applicant and issue a certificate to that effect and shall maintain a register of dormant companies.

In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as specified in Companies (Registration of Offices and Fees) Rules, 2014 to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed.

 

Applicable Provisions: – Section 455 of the Act read with Rule 3, 4, 5, 6 and 7 of Companies (Miscellaneous) Rules, 2014

FOR OBTAINING THE STATUS:  A company shall make application in Form MSC-1 to the Registrar after passing a special resolution to this effect in the general meeting of the company or after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of at least 3/4th shareholders (in value) in accordance with the provisions of section 455

The following conditions need to be fulfilled for applying to Registrar to grant status of dormant company:

  • 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 is neither having 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 workmen’s dues;
  •   the securities of the company are not listed on any stock exchange within or outside India.

 

CERTIFICATE OF STATUS OF DORMANT COMPANY

The Registrar shall, after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2 allowing the status of a Dormant Company to the applicant.

MINIMUM NUMBER OF DIRECTORS FOR DORMANT COMPANY.- 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. A dormant company shall be required to hold at least one meeting of the Board of directors in each half of a calendar year and the gap between the two meetings should not be less than ninety days.

ROTATION OF AUDITORS: The provisions of the Act in relation to the rotation of auditors shall not apply on dormant companies.

RETURN OF DORMANT COMPANIES.- A dormant company shall file a “Return of Dormant Company” annually, inter-alia, indicating financial position duly audited by a chartered accountant in practice in Form MSC-3 along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year: Provided that the 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, whenever the company allots any security to any person or there is any change in the directors of the company.

CASH FLOW STATEMENT: The financial statements of a dormant company may not include the cash flow statement.

REGISTER OF DORMANT COMPANIES: The Register maintained under the portal maintained by the Ministry of Corporate Affairs on its web-site www.mca.gov.in or any other website notified by the Central Government, shall be the register for dormant companies.

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

 

Application for change of status from Dormant to Active company

Applicable Provisions: – Rule 7,8, 9, and 10 of Companies (Miscellaneous) Rules, 2014

Application for seeking status of an active company.- An application, under sub-section (5) of section 455, for obtaining the status of an active company shall be made in Form MSC-4 along with fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an active company is being filed. Provided that the Registrar shall initiate the process of striking off the name of the company if the company remains as a dormant company for a period of consecutive five years.

  • The Registrar shall, after considering the application filed, issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.
  • Where a dormant company does or omits to do any act mentioned in the Grounds of application in Form MSC-1 submitted to Registrar for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within seven days from such event, file an application, for obtaining the status of an active company.
  • Where the Registrar has reasonable cause to believe that any company registered as ‘dormant company’ under his jurisdiction has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under section 206 of the Act and if, after giving a reasonable opportunity of being heard to the company in this regard, it is found that the company has actually been functioning, the Registrar may remove the name of such company from register of dormant companies and treat it as an active company.
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