There are various circumstances
under which a company is formed but no regular business is carried out in same
due to various reasons such as:
1.
Business is
formed for the future and only research work is carried out,
2.
Company is
formed to launch a new product line in different segments in coming years and
formed to preserve name;
3.
Company has
been formed but can’t commence business operations due to some circumstances
like travel to another place for a long period, medical illness, etc.;
4.
Company is
formed to hold any fixed asset only and no regular business is required to be
carried out etc.
In such a case, regular
annual compliances involve lots of efforts and costing and a person
may find it difficult to run such a company without any operations.
Therefore, Companies Act, 2013 provides
an option to declare such a company as a dormant company. Dormant
companies are required to carry out less compliances as compared to active
companies. Further, Status of dormant company can be changed to regular on
filing an application with RoC.
Let’s find out how you can get
the status of dormant for your company, any pre-conditions required to be met,
what formalities you will need to do while remaining a dormant company, etc. in
this article.
1. Meaning of dormant company
1.
payment of
fees by a company to the Registrar;
2.
payments
made by it to fulfil the requirements of any law;
3.
Payment
made for allotment of shares to fulfil the requirements of the Act; and
4.
payments
for maintenance of its office and records
2. Conditions to be satisfied before declaring a
dormant company
As per Rule 3 of The Companies
(Miscellaneous) Rules, 2014, Any company can apply for status of Dormant
company only if satisfies following conditions:
1.
any
inspection, inquiry or investigation has not been ordered or taken up or
carried out against the company;
2.
No prosecution
has been initiated and pending against the company under any law;
3.
The company
is neither having any public deposits which are outstanding nor the company is
in default in payment thereof or interest thereon;
4.
The company
is not having any outstanding loan, whether secured or unsecured. However, if
Company has any outstanding unsecured loan, the company may apply for dormant
company after obtaining concurrence of the lender and enclosing the same with
Form MSC-1.
5.
There is no
dispute in the management or ownership of the company and a certificate in this
regard is enclosed with Form MSC-1.
6.
The company
does not have any outstanding statutory dues;
7.
The company
has not defaulted in the payment of workmen’s dues;
8.
The
securities of the company are not listed on any stock exchange within or
outside India.
3. Process of declaring a company as Dormant
Company
Once the management and board
of directors decide to go for acquiring dormant company status, following
process should be adopted to get the certificate of dormant company status from
the Registrar:
1.
The Company
shall hold the board meeting by giving a notice of at least 7 days
and decide the matter of obtaining dormant company status.
2.
Call a
General Meeting of shareholder and pass a special resolution to this
effect; or The Company may, after issuing a notice to all the shareholders of
the company for this purpose, obtain the consent of at least 3/4th shareholders
(in value).
3.
File an
application with the Registrar of Company in Form MSC-1 for acquiring dormant
company status with required documents;
4.
Once the
application is vetted and the Registrar is satisfied with the documents, The
registrar shall issue the certificate in Form MSC-2 granting status of dormant
company.
5.
The
registrar shall put the name of the Company in register of Dormant Companies
and shall update the status on MCA portal
4. Benefits of converting to a dormant
company
After declaring yourself as a
dormant company, following benefits your company will have:
1.
The main
advantage is that the status of a dormant company gives an opportunity to
maintain corporate status even if no business is carried out
2.
The name of
the company remained protected through trademark and no other company can have
an identical name.
3.
Dormant
company status allows the company to hold the company’s status for a future
period when it will actually start the project.
4.
The company
gets more period from its establishment to say it has a long history and is
well established even though business started later on.
5.
Less
compliances are required as compared to active companies.
5. Documents required for dormant company
Before applying for obtaining
status of dormant Company, Following documents should be ready:
1.
Certified
copy of board resolution for acquiring status of dormant company.
2.
Copy of
special resolution
3.
Auditor’s
certificate
4.
No
objection certificate of regulatory authority for that company, if any.
5.
Copy of
latest financial statements and annual return.
6.
Confirmation
from the lender in case of any outstanding loan of the company.
7.
Certificate
of no dispute between management and owners.
8.
Statement
of affairs duly certified by a Chartered Accountant or Auditor(s) of the
company.
6. Special provisions applicable to Dormant Company
A Dormant Company is required to
follow the following provisions to maintain the status:
1.
Annual
Return: Dormant Company is required to
file “Return of Dormant Company” in Form MSC-3 by 30th April of the following year.
2.
Return
of Change in Directors and Allotment of shares: In case of change in directors and allotment
of any shares, the company is required to file regular returns.
3.
Minimum Number
of Directors: Dormant
company has to maintain a minimum number of:
1.
3 Directors
in case of a public company; and
2.
2 Directors
in case of Private Company; and
3.
1 Direcor
in case of OPC.
4.
Rotation
of Auditors:
Provisions related to rotation of auditors does not apply on dormant companies.
5.
Board
Meetings: Unlike
active companies, dormant company are required to hold only 1 Board Meeting in
each half calendar year and gap between 2 meetings should not be less than 90
days.
6.
Income
Tax return: The
dormant company has to file an income tax return even though there is
no income generated.
7. Other Provisions
a. Consequences of Non-compliances:
b. Maximum period of Dormant Company
c. Conversion of Dormant company to Active company