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Overview

A company incorporated under the Companies Act, 2013, is required to do several compliances under the Company Act and Rules. However, it still requires compliance with various provisions of the companies act. At times a company is registered for a future project, or the Company is not active and does not have significant accounting transactions or is an inactive company. Other kinds of companies are incorporated only to hold or maintain the Intellectual Property Rights of the companies. These companies are, in a sense, inactive and do not do income-generating activities. Under Section 455 of the Companies Act, these companies may apply to the Registrar of Companies for changing the status of the Company from the active Company to a dormant company. As a dormant company, only a few of the provisions of the Companies Act shall apply. In the below section of this page, we will discuss the compliance requirements for a dormant company.

Active Company - Dormant Company

Meaning of Inactive Company

To make an active company dormant, the term “Inactive Company” means

  1. That the company is not carrying out any business activity or
  2. There is no significant accounting transaction during a period of the last two financial years.
  3. The companies that have not filed the financial statement or annual return to the ROC during the previous two financial years.

Significant Accounting Transactions

means all transactions other than the transactions.

  1. Payments made to ROC or towards fulfilling the requirements under the companies act or any other law applicable to the company.
  2. Transactions relating to allotment of shares
  3. Payments towards the maintenance of the office or records.

The benefit of Dormant Company

The inoperative company that does not do any business now can, by converting as a dormant company, continue as a going concern and remain valid as a legal entity for a future project or use. One of the objectives of converting an active company into a dormant company is to reduce the company’s compliance requirements under the Companies Act, 2013. Here is the list of advantages as a dormant company.

  1. To Protect the Company Name during inactivity
  2. To Reduce Regular Compliance Burden
  3. Option to Revive when the company has business
  4. Few provisions of the company act apply
  5. Simplified Annual Return Filing
  6. Rotation of auditor does not apply
  7. Board Meeting to be held once in every six month

Note: When a company acquires the status of “Dormant Company”, it does not affect the debts, liabilities, obligations, or contracts incurred or executed before the date of change of status from an active company to a dormant company.

The conditions to be satisfied before applying for dormant company status

    1. No inspection, inquiry or investigation has been ordered or taken up or carried out against the company or no prosecution has been initiated and pending against the company under any law;
    2. That the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
    3. That the company is not having any outstanding loan, whether secured or unsecured and if have, has obtained the concurrence of the lender
    4. That there is no dispute in the management or ownership of the company and 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.;
    5. The company has not defaulted in the payment of workmen’s dues; the securities of the company are not listed on any stock exchange within or outside India.

Stepwise Process To Convert an Active Company as Dormant

Step - 1: Convene Board Meeting

Convene Board Meeting

The Board of Directors shall pass a resolution approving the filing of an application for conversion of the company’s status as Dormant Company in the Board Meeting. The Board shall also authorise one director to act on this behalf and send Notices to all shareholders for the Extra Ordinary General Meeting.

Step - 2: EGM Notice

EGM Notice

Issue appropriate Notice calling the EGM along with an explanatory statement, clearly stating the reasons as to why the Board of directors proposes a change in status of the company and as “Dormant Company”

Step - 3: CA Certification of Statement of Affairs

CA Certification of Statement of Affairs

While the EGM is scheduled, the authorised director needs to work with the Statutory Auditor or a Chartered Accountant in practice for certification of the Company’s Statement of affairs (Financials).

Step - 4: Conduct of EGM

Conduct of EGM

On the designated EGM Date, the meeting of shareholders to be conducted per secretarial standards and with the requisite quorum, a Special Resolution approving the filing of an application for conversion of the status from Active to Dormant Company need to be passed.

Step - 5: Filing of MGT-14

Filing of MGT-14

Every special resolution passed in EGM needs to be filed with the Registrar of Companies in the prescribed form MGT-14 with the certified true copy of the resolution along with EGM Notice within 30 days of EGM.

Step - 6: Application for Change in Status

Application for Change in Status

After the MGT-14 is filed with the ROC, an application in the Form MSC-1 along with the scan copy of all resolutions, declarations, consent of creditors and CA Certificate is filed with the ROC for its approval.

Step - 7: Change of Status From Active to Dormant Company

Change of Status From Active to Dormant Company

The registrar of companies examines the application made in MSC-1 and, if finds it in order, then issues a Certificate in form MSC-2. With the issue of the MSC-2 form the status of the company is changed as Dormant Company

List of Documents Required To Convert as Dormant Company

  1. Board Resolution authorising the conversion as Dormant Company
  2. Copy of special resolution passed in EGM
  3. Copy of memorandum of association/articles of association.
  4. Latest financial statement and the annual return of the company.
  5. Statement of affairs duly certified by CA or Auditor
  6. Consent from the lender if any loan/debt is subsisting.
  7. Declaration or Certificates from the Directors of the company.

Applicable ROC Forms & ROC Fee

 

To acquire status as a Dormant Company following three applications shall be filed to the Registrar of Companies with Prescribed Filing Fee

 

No Form Name Explanation ROC Fee
1 e-Form – MGT-14 The MGT-14 is filed to the ROC within 30 days of passing a Special Resolution to register the Special Resolution as required under section 117 of the companies act. Rs. 300/- to Rs 600/-
2 e-Form – MSC-1 The application for changing the status as Dormant Company is filed to the ROC in e-Form MSC-1 within 30 days of passing of the special resolution for change of status of the company as a dormant company Depends on the Capital of the Company as per the below table.

 

Filing Fee for MSC-1 (Application to make a company as Dormant Company

 

No Authorised Capital Other than OPC or Small Company OPC or Small Company
1 Up to Rs. 25,00,000/- Rs. 2,000/- Rs. 1,000/-
2 Rs. 25,00,001 To 50,00,000/- Rs. 5000/- Rs. 2,500/-
3 Rs. 50,00,001 To Rs 5 Crores Rs. 10,000/- N/A
4 Rs 5 Crores to Rs 10 Crores Rs. 15,000/- N/A
5 Above Rs. 10 Crores Rs. 20,000/- N/A

Regular Compliance

The companies generally convert as Dormant to hold property, Intellectual Property Rights or to be utilised for a future business. For example, a real estate developer may buy land for future projects. As a dormant company, ensure that the company meets minimum compliance to following after it has acquired the Dormant Company Status.

Minimum Number of Directors:

Minimum Number of DirectorsWhile a company is on Dormant Status, it should meet the requirements of a minimum number of directors all the time under the Companies Act, 2013. The minimum number of required directors as per the company type is as under

  1. Public Limited Company : 3 Director
  2. Private Limited Company: 2 Director
  3. One Person Company: 1 Director

Board Meeting:

Board MeetingEven when the company is dormant, the Board of Directors needs to meet at least once every six months.

Return of Allotment

Return of AllotmentIf the dormant company allots new shares during the company is under Dormant Status, it shall continue to file Return of Allotment in PAS-3 Form.

Registered Address:

Registered AddressEven if it has acquired dormant status, the company shall continue to maintain its registered office so that the communication from the government departments and other stakeholders is received and responded to.

Annual Return of Dormant Company

There is a myth surrounding the status of the Dormant Company; there are people who believe that by converting as a Dormant Company, they don’t have to do anything concerning compliance. Though there is relaxation with respect to several provisions of the companies act, it does not mean that the company does not have to do annual compliance for a dormant company. There are four constituents of annual compliance, such as accounting, statutory audit, ITR filing, and ROC Returns. We shall be discussing each aspect separately below.

 

Accounting & Preparation of Financial Statements: The dormant company must maintain the records and conduct half-yearly board meetings. The Registered Address of the company is also to be maintained. Thus there would be debit entries in the books of account on account of administrative expenses. Hence even if the company has acquired dormant company status, it still needs to do accounting and prepare the financial statement of the company

 

Statutory Audit: Though there is relaxation to auditor rotation, the statutory audit of the financial statement of the dormant company is still required. Hence the company must prepare its books properly with supporting documents of its expenses and get the statutory audit done for the company.

 

TAX Returns: The filing of TDS, GST Returns applies to dormant companies as well. The Income Tax Return has to be filed for the dormant company, just like it is filed for an active company.

 

ROC Filing: With respect to the annual ROC Filing, there is significant relaxation as the dormant company has to file a simplified Annual ROC Return in form MSC-3 indicating the financial position of the company duly certified by a Chartered Accountant in practice, within 30 days from the end of each financial year with the ROC

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