Recently, Section 455 of the 2013 Companies Act established the idea of a Dormant Company. Simply, the word “Dormant Company” refers to a business that is not operating. It is the ideal escape from a company strike-off or closure that results in the permanent liquidation of the enterprise. A Dormant Company gives entrepreneurs the opportunity to form a business for a future endeavor or to hang onto an asset or intellectual property rights without engaging in any substantial accounting transactions. An application to the registrar (ROC) must be submitted by a company in order to receive the benefits of a Dormant Company. In this article, we will discuss the complete process of obtaining the status of Dormant Company.

What is a Dormant Company?

Non-performing companies are those that are currently registered but have not conducted business for the past two years or have not submitted their financial accounts for the past two fiscal years. If a company is registered or established for future projects, to hold a specific asset or intellectual property, or if a company/firm does not have any significant accounting transactions under the company’s name, it is possible for the company or inactive company to submit an application to the Registrar of Companies (RoC).

Additionally, the definition of “major accounting transaction” permits some transactions to be omitted from the definition; these transactions include:

1.  Registrar fee paid for registration;

2.  Fees required to fulfill the obligation under the 2013 Companies Act;

3.  Completing the share allocation requirement;

4.  Transactions carried out to keep the registered office and records in good order.

Advantages of Dormant Company

Restarting is preferable than starting over from scratch, and only dormant companies have this power. Get a dormant status if you wish to step away from your business for a while before returning to it later. Even though a company is dormant and not running, the law nonetheless considers it to still exist. The following are the main advantages of Dormant Company:

1.  Protects and preserves the company’s reputation.

2.  Helpful for getting started on future projects.

3.  Aids in maintaining a fixed asset or intellectual property.

4.  Compared to the Companystrike-offr strike off process, there is less compliance.

5.  Simple to respond and attain active status.

6.  Until a Dormant Company becomes reactive, it is not subject to taxation.

Condition before applying for Dormant Status

The following are the conditions before applying for Dormant Status:

1.  No inspection, inquiry, or investigation against the company shall be ordered or conducted. Additionally, no legal action has been taken or is pending against the corporation in any court of law.

2.  In the name of the corporation, there are no unpaid public deposits or interests.

3.  There shouldn’t be any unpaid secured or unsecured debt owed by the business. The documents should be submitted with the lender’s approval if there is an unsecured loan.

4.  A certificate stating that there is no disagreement or conflict between the company’s management and promoters must be enclosed.

5.  There are no unpaid taxes owed in the company’s name to the federal, state, or local governments.

6.  There shouldn’t be any late payments for the company’s workers’ compensation.

7.  Neither inside nor outside of India, the corporation shouldn’t list itself on a stock exchange.

Process

The following is the step-by-step process of a Dormant Company:

1.  In accordance with Section 455(1) of the Companies Act of 2013, a company must submit an application to the Registrar of Companies using Form MSC-1 and pay the applicable fee to (RoC).

2.  Before submitting an application to become a dormant business, a special resolution must be approved by the company’s shareholders at a general meeting, or at least 3/4 must agree. the approval or a vote.

·         A certified copy of the board’s decision to apply for dormancy (made at the BoD meeting);

·         A certified copy of the general meeting’s special resolution granting the firm dormancy status;

·         A certificate and audit report

·         A statement of affairs properly certified by the company’s CA or auditor;

·         If overseen by a regulator, a regulatory authority’s No Objection Certificate (NOC);

·         Annual returns and updated financial statements must be provided with Form MSC-1.

·         A special resolution must be submitted with the appropriate documents:

3.  A business may only submit an application if

·         There cannot be a standing order for an inspection, inquiry, or investigation against the company;

·         There have been no legal actions brought against the corporation;

·         The business shouldn’t have a public deposit balance or be in arrears on any payments or interest;

·         There are no unpaid secured or unsecured loan installments. If there is an outstanding unsecured loan, a corporation may only submit an application with the lender’s approval;

·         Form MSC-1 and a certificate declaring that no disagreement exists between the management and owner of the business;

·         The business must not owe any taxes;

·         Has not missed a payment deadline for paying employees;

·         The securities are not listed on any Indian or international stock exchange;

4.  The Registrar will issue a certificate allowing the status of a Dormant Company after evaluating and taking into account the submitted application Form MSC-1 (in Form MSC-2).

[It should be noted that the list of documents mentioned above is not inclusive; RoC may request more documents as needed for awarding the status of a defunct firm.]

Conclusion

There are numerous advantages to obtaining the status of a Dormant Company or registering under Section 455 of the 2013 Companies Act^[1]. It provides an opportunity to temporarily step away from the firm and come up with better ideas and methods for resuming operations. A business may submit an application for a dormant entity that hasn’t engaged in any commercial activity or made any substantial financial transactions over the previous two fiscal years. The company’s goal in obtaining dormancy status shall not be to defraud shareholders and creditors. Seek professional advice for Dormant Company. You can also reach at Bizadvsors.io for more information.

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