Procedure to Obtain Status of Dormant Company

Last Updated at: Jul 13, 2020
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Procedure to Obtain Status of Dormant Company under Companies Act, 2013
The Ministry of Corporate Affairs (MCA) has amended what is called the Rule 25A, to allow companies to make a filing about their directors and become compliant. The decision came in as a relief for companies that were marked ACTIVE non-compliant.

 

A company which is a registered entity but is not currently active is called as a Dormant company. Section 455(1) of the Companies Act, 2013, has introduced the concept of a Dormant company as well as the provisions that let a company be a Dormant company. Let’s see in detail what is a dormant company and the conditions that you need to follow before letting the world know your dormancy status.

WHAT IS DORMANT COMPANY?

As per the Companies Act 2013, a company or an inactive company, that has not made any significant accounting transaction and has been formed and registered for a future endeavour or to be retained as an asset or intellectual property can file an application to the Registrar in a prescribed manner to attain the status of a Dormant company. A Dormant company:

    • Can apply to revert to an active status company
    • Cannot remain with the status of a Dormant company for more than five consecutive financial years.

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OBJECTIVES OF A DORMANT COMPANY

A Dormant company forms or registers its status with the following goals in line:

  • Has been incorporated for a future project
  • Is held as an asset or intellectual property
  • Has no significant transactions in particular financial year
  • Is an inactive company

REASONS FOR OBTAINING STATUS OF DORMANT COMPANY

A company obtains a dormant status for many purposes, such as:

  • When the business owners are preparing to launch a business, to reserve a name for the company, it may be registered as dormant.
  • When the business owners plan to restructure a business, they may obtain a dormant status for it.
  • If there is a requirement of an extended period off for the business owner due to reasons like illness, travel, maternity leave, sabbatical, etc.

ELIGIBILITY TO BE A DORMANT COMPANY

A company which is not doing any business for a couple of financial years and further does not intend to do any business in near future for up to five consecutive years can apply for a Dormant company status.

WHAT ARE THE CONDITIONS BEFORE APPLYING FOR A DORMANT STATUS?

A company can apply for the dormant status only if it meets the following requirements:

  • No ordering or carrying out the inspection, inquiry, or investigation against the company. Also, there is no initiation of the prosecution and pending against the company in any court of law.
  • There is no outstanding payment on public deposits or interests, in the name of the company.
  • There shouldn’t be any outstanding loan on the company, secured or unsecured. In case there is an unsecured loan, the lender’s consent should be enclosed with the form.
  • A certificate to the effect of no dispute or difference among the management and promoters of the company has to be enclosed.
  • There are no outstanding tax dues to the central or state government or local authorities in the name of the company.
  • There should be no default in the payment of the company’ s workmen’s dues.
  • The company should not list itself on the stock exchange, within or outside India.

PROCEDURE TO GET THE COMPANY’S STATUS AS DORMANT

Step 1. First, you must call for a board meeting to fix the time and venue to call an extraordinary general meeting of the members to pass a special resolution (at least 3/4th in value). The director can make a general application for dormant status with ROC in this board meeting. You must issue a notice for the public meeting. Also, you must hire a Chartered Accountant or Auditor to issue a certificate in this general meeting.

Step 2. Next, the extraordinary general meeting takes place. Then a special resolution is passed. The exact copy of the individual decision and the notice of extraordinary public meeting having an explanatory statement. This is because an attachment to e-form MGT-14 is filed with the ROC.

Step 3. Next, the company must file an application in form MSC-1 enclosing the following attachments to obtain a dormant status for the 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.
  • You must attach the Annual Return and the Latest Financial Statement compulsorily.
  • A certificate to the effect of declaring no dispute among the management or the ownership.
  • If there is any loan outstanding in the name of the company, the consent of the lender has to be attached.

EXEMPTIONS PROVIDED TO A DORMANT COMPANY

The following exceptions acquires to a dormant company:

  • A dormant company does not have to show cash flow statements in the company’s financial statements.
  • The provision regarding holding a board meeting in each half of the calendar year which has to be held at a gap of at least 90 days. Which effectively means only two board meetings are mandatory during a year.

However, the provision which relates to the rotation of the auditors does not apply to a dormant company.