Dormant Company – Meaning, Benefits and Section 455 of Companies Act, 2013

A dormant company is one that has been incorporated at Companies House, but currently does not carry out some sort of business operation or earn any form of income.

Understanding the concept of a Dormant company

The concept of a dormant company is a concept recently introduced in the Companies Act 2013, which was not previously in the 1956 Act. The Indian legislature seems to have borrowed mainly from the legal provisions of the company operating in India. However, there are some important differences such as the length of dormant, etc. In line with the policies applicable to Indian investors, the provision for non-performing companies has been reflected in the light of promoting and simplifying the process of incorporation and operation of the company.

What are Dormant companies?

Companies Act, 2013 Act has identified a new set of companies called unemployed companies. In terms of Section 455 (1) Where a company is formed and registered under this act of a future project or for assets or intellectual property and does not have significant accounting transactions, such company or non-performing company may apply to the Registrar for the prescribed method of acquiring dormant company.

Getting dormant status for Company

The Company may be promoted as a dormant Company According to:

1. Suo Moto Application: A company that meets the above criteria may apply Suo-moto to the Registrar of Companies in the form of ‘Dormant Company’ on Form MSC-1 and the fees payable to companies (Registration Offices and Fees Regulations, 2014 after complying with the provisions of Company Act 3 2014.
2. Loss by ROC: In the event that a company has not completed the financial statements or annual returns for 2 consecutive years, the Registrar may issue a notice to that company and enter the company’s name in the register kept for Unemployed Companies.

Eligibility:

 That Company will be able to apply for the status of an Unemployed Company if the following 8 conditions are satisfied:

(i) No inspections, investigations, or investigations have been ordered/taken/performed for the company.

(ii) No prosecution has been instituted against the company under any law.

(iii) The Company does not have arrears of public funds and does not pay taxes on it and its interest.

(iv) The Company does not have outstanding loans whether they are secured or unsecured.

Subject to any outstanding loan, the company may apply after obtaining the lender’s approval and filing the same on the MSC-1 form.

(v) There is no dispute in the management/administration of the company and a certificate in this regard is attached to the MSC-1 form.

(vi) The Company does not have any official fees, taxes, duties, or other charges payable to any CG or SG or local authorities, etc.

(vii) The company did not fail to pay employees’ salaries.

(viii) The security of any company is not registered on any stock exchange within or outside India.

Therefore, the listed Company cannot apply under this section.

The registrar after processing the application will approve the status of the Unemployed Company to the applicant in the form of MSC-2.

For the purposes of this section, the clarification appended to section 455(1) states that

The inactive company ” means a company that has not carried on any business or activity, or has not made any significant financial transactions during the past two financial years, or has not completed financial statements and annual returns during the past two financial years.

1. Important financial activity ’’ means any transaction other than
2. Payment of company fees by the Registrar;
3. Payments made by it for the purposes of this Act or any other law;
4. Allocation of shares to meet the requirements of this Act; and
5. Fees payable for the maintenance of its office and records.

Procedure for obtaining the status of the company as dormant

Step 1. First, you must convene a board meeting to set a time and place for the regular meeting of the members to pass a special resolution (at least 3/4 per value). The director may make a general request for a dormant position with the ROC at this board meeting. You must issue a public meeting notice. Also, you should hire a Chartered Accountant or Auditor to issue a certificate to this general meeting.

Step 2. Next, an extraordinary general meeting takes place. After that, a special decision is passed. An exact copy of the individual’s decision and a notice of the extraordinary public meeting with an explanatory statement. This is because the attachment to the e-form MGT-14 is included in the ROC.

Step 3. Next, the company must apply on the MSC-1 form and attach the following attachments to determine the company’s status:

• Certified copy of board decision.
• Certified copy of the special resolution.
• Certificate from the auditor.
• A statement of news, duly approved by the auditor or chartered accountant.
• You must attach a Return Return and Recent Financial Statement forcibly.
• A certificate stating that there is no dispute between management or ownership.
• If there is any loan in the company, the lender’s permit must be included.

Required documents for obtaining a Dormant Company status

• A certified copy of the decision of the board authorizing the implementation of the plan.
• A certified copy of the special order https://www.legalraasta.com/blog/mgt-14/authorizing the acquisition of accommodation, for submission to the clerk on Form MGT-14.
• Auditor’s Certificate
• The news statement is duly certified by the Chartered Accountant or the company’s auditors
• A copy of the approval of the opposition certificate (NOC) from the controlling authority in the event that the company is controlled by that authority
• The latest financial statements and annual company returns are required to attach in the event of a similar filing to the Registrar
• Consumer’s consent if the loan is outstanding
• Certificate of disputes between management or ownership

Compliance to be made by the Company after obtaining the status of the Dormant Company

1. A dormant company will keep a small number of managers.
2. The dormant company will submit a “Return of Dormant Company” audited by a Chartered Accountant working on Form MSC-3 within 30 days from the end of each financial year.
3. In terms of Section 173 (5), the Dormant Company is required to convene at least one meeting of the Board of Directors held each part of the calendar year and the gap between the two meetings is not less than 90 days.

Benefits of Dormant Company

The immediate question that arises when you understand what a dormant company means is this – why would anyone create a company and register it to declare it dormant? The main purpose of acquiring or maintaining a company’s outstanding position is to enable the company to maintain its corporate status even if it does not do any business.

The benefits derived from that condition can be summarized under the following headings –

1. Company Name Protection – Intellectual property owned by a dormant company includes a trademark of a company name. The company name is protected so that others are not allowed to trade under the name of the dormant company.
2. Future Project – A company may be formed to prepare for a future project. This means the intent of the promoters to trade and therefore to keep the domain name. A good example of this as mentioned in Ramaiya is a company that has acquired a lease but is awaiting further permits before starting a business. (page 5755)
3. Company History – While this is not the most important benefit, by establishing a company that started and later started a business, it can be said to have been well established since its inception even though it may have started its own business later. It helps the company to show a better image to potential customers and / or lenders.

When to apply for a dormant status?

In terms of section 455 of the Companies Act, 2013, a company that has never engaged in any business or has not had a significant transaction may apply to the Registrar for the position of a dormant company. The definition of a provision means “significant accounting transaction” and “an inactive company.”

The relevant section of the provision reads as follows:

“Definition For the purposes of this section,

1. “Unemployed company” means a company that has not conducted or operated a business, or has not performed significant accounting functions in the last two financial years, or has not submitted annual financial statements and returns during the last two financial years;
2. “Important Accounting Activity” means some other transaction than-

• Payment of company fees by the Registrar;
• Payments made by it for the purposes of this Act or any other law;
• Allocation of shares for the purposes of this Act; and
• Office fees and records. ”

Therefore, if a company makes any transaction that does not fall within the four headings mentioned above, it is likely to lose its dormant position.

According to renowned author Ramaiya, a newly registered company can apply to a dormant company if it has not done any business or operation since its inception, without submitting tax returns to the Registrar of Companies or other payments complying with the terms of the Company Act or any other law. 

How to get the status of Dormant Company

How do you find the status of an Unemployed Company?

The steps mentioned below are followed during the granting / finding of dormant:

1. A company must submit a Special Decision at a general meeting of the company or notify its shareholders and obtain the approval of at least three quarters of the shareholders.
2. The Company must apply from From MSC – 1 to the Department of Cooperatives and pay the prescribed fee under the Companies Act (Registration and Finance Offices), 2014.
3. Upon satisfaction, the Registrar shall issue a Certificate of Unemployment Company. (Note that the Registrar must be satisfied that the company complies with the requirements set out in Section 455 and the relevant Rules before issuing a certificate.)
4. The registrar will keep a register of unemployed companies.

An existing company that has not had a significant transaction or continued business with any business for the past two years or has not submitted its financial statements or annual returns for the past two financial years / two years shall be deemed to be a non-performing entity for Section 455. -suo fire. The Act also empowers the Registrar to remove a company name from the Register if it remains inactive for five consecutive years. This is in contrast to the UK situation where a company is allowed to remain inactive for an indefinite period of time. However, such a provision could invite trouble and also tend to be misused in the Indian business environment which is slowly moving towards a financially friendly economy.

Conditions should be met by obtaining dormant status

Term 3 of the Companies Act (Miscellaneous) Regulations 2014 sets out several conditions that a company must meet before it can gain the status of a dormant company.

The conditions set out under these Rules are discussed below.

• No inspections, investigations, or investigations should have been ordered or conducted or conducted against the company.
• No prosecution had to be initiated and awaited by the company under any law.
• The Company must not have any public deposits unpaid and must not be liable for payment or interest on it.
• The company should not have any outstanding loans, whether they are secured or unsecured.
• There should be no dispute in the management or ownership of the company and a certificate in this regard must be submitted on Form MSC-1.
• The company should not have any official taxes, fees, duties, etc. Payable to the Central Government or any State Government or local authorities etc.
• The company should not have failed to pay its employees’ salaries.
• Company security should not be listed on any stock exchange within or outside India.

Another requirement under the Companies Act (Miscellaneous) Regulations 2014, Rule 6 is that a dormant company must have a minimum of 3 directors in the case of a public company, 2 if it is private and one if there is One Private Company.

Conclusion

In terms of section 455 of the Companies Act, 2013 Dormant Company is an unemployed company that has not conducted any business or has not made significant financial transactions during the last two financial years.

Such companies may apply to the Registrar for the status of a dormant company. At the same time, the Registrar may and may direct such a company in the case of a dormant company. For more details associated with Payroll Management, you can log in to our website services LegalRaasta. Our expert team will assist you in each part related to Accounting & Bookkeeping, Company Registration, Trademark Registration, and its services relatable. You can download our app which is easy to access in android mobiles LegalRaasta APP. Also, you can give us a call at 8750008585 and feel free to send your query on Email: contact@legalraasta.com