All about dormant companies

Section 455 of the Companies Act 2013 read with Companies (Miscellaneous) Rules, 2014 stipulate the provisions pertaining to "Dormant Company". Where a company is formed and registered under this Act for a future projector 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 such manner as may be prescribed for obtaining the status of a dormant company.

In other words, a dormant company status is a new phenomenon in the Companies Act, 2013 and is an excellent tool for keeping assets in the company for its future usage. A dormant company may be either a public company or a private company or a one person company. 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.

Meaning Inactive Company

An Inactive Company which:

• Is not carrying on any business or operations; or
• Has not made any significant accounting transaction during last two financial years,
• Has not filed financial statements and annual returns during the last two financial years.

Meaning of Significant Accounting Transaction

It means any transaction made by the company except below transaction:

• Payment of fees by a company to the Registrar;
• Payments made by company to fulfill the requirements of this Act or any other law;
• Allotment of shares to fulfill the requirements of this Act; and
• Payments for maintenance of its office and records.

All the transactions apart from the above-mentioned transactions will be considered as Significant accounting transactions.

PROCEDURE FOR OBTAINING DORMANT STATUS

A Company can obtain status as Dormant Company by two following ways

1. Suo moto or
2. ROC can declare a company as Dormant.

1. Suo-Moto application: A company which meets the above criteria can apply suo-moto to Registrar of Companies (ROC) for the status of a "Dormant company" in Form MSC-1 along with such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 after complying with the provision of Rule 3 of The companies (Miscellaneous) Rules, 2014 .
2. Dormant by ROC: In case of a company which has not filed financial statements or annual returns two financial years consecutively, the Registrar may issue a notice to such company and enter the name of such company in the register maintained for dormant companies.

Hence, it is not always the company which applies for the status of the dormant company, even the Registrar is also empowered to suo moto convert a company into a dormant company.

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. Where a company fails to comply with the requirements of Section 455 of the Companies Act 2013 read with Companies (Miscellaneous) Rules, 2014, the Registrar can strike off the name of a dormant company from the register of dormant companies.

STEPS TO BE FOLLOWED BY THE COMPANY FOR GETTING DORMANT STATUS

STEP-1:

The company shall obtain Statement of affairs from the Auditor of the company. The statement of affairs shall give the financial position of the company at the time of passing resolution in the shareholders meeting.

STEP-2:

The company shall hold the General Meeting at the appointed time, place and date as per the notice calling the said meeting. The notice shall propose the resolution as a special resolution. The company shall pass a special resolution for obtaining the status of a dormant company and authorizing the director(s)  to make an application  to  ROC  or  After issuing a  notice to all the shareholders of the company for this purpose and obtaining the consent of at least 3/4th shareholders (in value).

STEP-3:

After passing the special resolution, the company shall file e-form MGT-14 with ROC for filing special resolution.

STEP-4:

After filling of form MGT-14, the company shall file Form MCS-1 with the ROC along with the copy of the special resolution, copy of statement of affairs, declarations by the directors and other necessary documents.

On being satisfied with the merits of the application, the ROC shall issue certificate in Form MSC -2 on confirming the application.

ADVANTAGES TO THE PROMOTERS FOR OBTAINING DORMANT STATUS

1. Dormant Company shall hold only two board meetings in a year with a gap of 90 days in between the two companies.
2. Dormant Company is not required to include the statement of cash flow in its financial statement.
3. The provision of rotation of auditors is not applicable in case of the dormant company.
4. Dormant companies enjoy the advantages of lower statutory compliance cost as there are few statutory compliances applicable to dormant company as compared to active company
5. Dormant status is an advantage to promoters who want to hold an intellectual property or an asset under the corporate shield for its usage at a later stage.
6. Companies can enjoy the status of dormant company for a period of 5 consecutive years

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION.IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.