Friday, September 25, 2015

Register as Dormant Company

Register as Dormant Company

Limited Company or Private Limited Company or One Person Company can register itself as a dormant company and avail certain exemptions from mandatory compliances. Dormant company status is mainly obtained for companies registered to hold an asset or intellectual property and have no significant accounting transactions. In this article, we look at the procedure for registering as a dormant company in India and its advantages.

What is a dormant company?

As per the Companies Act, 2013, the definition for a dormant company is:
“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 such manner as may be prescribed for obtaining the status of a dormant company. Explanation.—For the purposes of this section,—
  1. “inactive company” means 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;
  2. “significant accounting transaction” means any transaction other than—
    1. payment of fees by a company to the Registrar;
    2. payments made by it to fulfil the requirements of this Act or any other law;
    3. allotment of shares to fulfil the requirements of this Act; and
    4. payments for maintenance of its office and records;
Therefore, any company that wishes to be only an asset company or have no significant business activities can apply and become a dormant company.

Eligibility for registering as dormant company

A company can apply for and become a dormant company, only if the following criteria’s are satisfied:
  1. No inspection, inquiry or investigation has 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: 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 ;
  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 taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;
  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.

Procedure for registering as a dormant company

To obtain the status of dormant company, the following steps must be followed by the company:

Board Resolution

The company must first conduct a General Meeting of the Board and pass a special resolutions for applying to become a dormant company or send notice of the same to all shareholders and obtain consent of atleast 3/4 of the shareholders in value.

Filing Form MSC-1

Once, the Board Resolution or shareholders approval is obtained, the same can filed with MSC-1 (Application for status of dormant company) with the requisite fees.

Certificate of dormant company

If the Registrar is satisfied with the application, then a Certificate will be issued by the Registrar in MSC-2 allowing the status of dormant company. Details of all dormant companies are maintained by the Registrar and also published on the MCA website.

Maintaining dormant company status

Dormant companies are required to file a “Return of Dormant Company” each year before April 30th with the Ministry of Corporate Affairs. The return of dormant company must include detail of financial position of the company duly audited by a Chartered Accountant in practice. The return of dormant company is filed usingForm MSC-3.

Returning to active company status

To restore the active company status, an application can be made to the Registrar in form MSC-4. If the Registrar is satisfied with the application, the company will be restored to active status by issuance of MSC-5.

Advantages of dormant company status

Once a company is registered as a dormant company, the annual return for the company can be filed using a simplified form MSC-3. Also, the number of Board Meetings to be conducted by the Company is reduced and the compliance burden is reduced.