A new rule for companies is Rule 25A, amended by the Ministry of Corporate Affairs (MCA), which allows them to submit information about their directors and become compliant with the Dormant Company
A company that is a registered entity but is not currently active is called 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 a dormant company and the conditions that you need to follow before letting the world know your dormancy status.
WHAT IS A 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 endeavor 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.
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 that is not doing any business for a couple of financial years and further does not intend to do any business in the near future for up to five consecutive years can apply for a 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 the extraordinary public meeting have 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 acquire to a dormant company:
- A 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 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 company.
As a result, hopefully, we have been able to adequately address your concern; please do not hesitate to contact us if you require any additional assistance. We are more than happy to help.