A dormant company is registered but not engaged in any significant business activity or operations.
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As defined under the Companies Act of 2013, a dormant company is registered but not engaged in any significant business activity or operations. It may have been established for future ventures or to hold assets without active trading. Dormant status filing allows these companies to minimise compliance requirements and maintain their registered status without the full spectrum of operational reporting obligations. If your company is in a similar state and you're considering transitioning to a dormant status to reduce compliance burdens, LegallensIndia is here to assist. Our team specialises in navigating the dormant status filing process, offering expert guidance to ensure a seamless transition. Ready to simplify your company's compliance landscape? Contact LegallensIndia today to get started.
A Dormant Company, also known as a Dormant Entity or Dormant Corporation, refers to a registered business entity not currently engaged in significant business activities or operations. Dormant status typically arises when a company has temporarily ceased its operational activities due to strategic reasons such as awaiting a future project, not yet commencing substantial business operations, or primarily existing to hold or manage intellectual property rights without directly engaging in revenue-generating activities. Such companies can apply to the Registrar to obtain the status of a Dormant company, with objectives including:
It's important to note that while Dormant companies have limited activity, they can apply to revert to active status and cannot retain Dormant status for more than five consecutive financial years.
When a company is established under the Companies Act of 2013 for purposes such as launching a future project, holding assets, or managing intellectual property and hasn't carried out any significant financial activities, it can be considered inactive. Such a company can apply to the Registrar for a change in status to become a dormant company, as outlined in the Companies Act.
Significant accounting transactions include all company financial activities, with the following exceptions:
Exploring the advantages of transitioning an active company to a dormant status under the Companies Act, 2013.
To qualify for dormant status under Section 455(5) of the Companies Act and Rule 6 of the Companies (Miscellaneous) Rules, 2014, a company must meet the following prerequisites:
A special resolution must be passed in a general meeting, or a notice must be issued to all shareholders to obtain the consent of at least three-fourths of shareholders (in value) to obtain dormant status, as per Rule 3 of the Companies (Miscellaneous) Rules, 2014.
The following conditions are to be satisfied before applying for dormant company status:
Note: If there are outstanding unsecured loans, the company can still apply for dormant status after obtaining consent from the lender and including this consent with the Form MSC-1 application.
Converting an active company to a dormant one involves a specific procedure under the Companies Act of 2013. Here's a simplified overview of the steps involved:
The Board of Directors should pass a resolution to apply for the company’s status conversion to dormant. One director must be authorised to handle the process and notify all shareholders about the forthcoming Extraordinary General Meeting (EGM).
Send out a detailed notice for the EGM, including an explanatory statement. This statement should outline why the Board proposes changing the company's status to dormant.
Before the EGM, the designated director should collaborate with the Statutory Auditor or a practising Chartered Accountant. This collaboration certifies the company's Statement of Affairs, essentially the financials.
Conduct an Extraordinary General Meeting (EGM) per Section 96, 100, and Secretarial Standard-2 (SS-2) to pass a special resolution for obtaining dormant status. The procedure for conducting an EGM should be followed as outlined.
File the special resolution passed at the EGM with the Registrar of Companies using Form MGT-14. This filing should include a certified true copy of the resolution and the EGM notice and must be done within 30 days of the EGM.
After securing a special resolution or obtaining consent from at least three-fourths of the shareholders (by value), submit Form MSC-1 to the Registrar. The requisite fee should accompany this application as per the Companies (Registration Offices and Fees) Rules, 2014 and include the following documents:
Upon reviewing the application, the Registrar will issue a certificate in Form MSC-2, granting dormant status to the company as per Section 455(2) of the Companies Act and Rule 4 of the Companies (Miscellaneous) Rules, 2014.
Dormant companies must file an annual return in Form MSC-3 within 30 days of the end of each financial year. This return should include a duly audited financial statement and be accompanied by the annual fee as prescribed.
Even while dormant, the company must file returns for any allotment of securities or changes in directorship as specified by the Act in the prescribed manner and timelines.
Note: The register maintained on the Ministry of Corporate Affairs portal is the official register for dormant companies, as per Section 455(3) of the Companies Act and Rule 5 of the Companies (Miscellaneous) Rules, 2014.
To obtain Dormant status, the specified forms must be submitted as mentioned above:
| S.No | Form Name | Explanation |
|---|---|---|
| 1 | e-Form MGT-14 | This form is submitted to the Registrar of Companies within 30 days of passing a Special Resolution to officially record the resolution as mandated by section 117 of the Companies Act. |
| 2 | e-Form MSC-1 | This form is used to apply for the change of company status to Dormant. It must be filed with the ROC within 30 days after the special resolution for the status change is passed. |
There's a common misconception that transitioning to a dormant company status absolves businesses from all compliance responsibilities. While it's true that dormant companies are granted certain relaxations under the Companies Act, this does not eliminate the need for annual compliance. The annual compliance for a dormant company encompasses four key areas: accounting practices, statutory audits, tax return filings, and Registrar of Companies (ROC) returns. Let's delve into each component:
Companies must maintain accurate records and conduct bi-annual board meetings despite their dormant status. The company's registered address must also be upheld. As a result, administrative expenses will still be recorded in the company's accounts, necessitating ongoing accounting activities and the preparation of financial statements.
Although dormant companies are exempt from auditor rotation requirements, they must still undergo a statutory audit of their financial statements. This entails thorough preparation of the company's books, complete with supporting documentation for all expenses, to facilitate the audit process.
Obligations such as filing TDS and GST returns remain applicable to dormant companies. Furthermore, these entities are required to file Income Tax Returns in the same manner as active companies.
Dormant companies benefit from a streamlined process for annual ROC filings. They must submit a simplified Annual ROC Return using Form MSC-3, which presents the company's financial position. This return, verified by a practising Chartered Accountant, must be filed with the ROC within 30 days following the conclusion of each financial year.
The filing should also include:
In summary, while dormant company status may offer some regulatory leniency, it does not exempt businesses from fulfilling essential annual compliance tasks.
At LegallensIndia, our team of experts is dedicated to assisting you with Dormant Status filings, ensuring a seamless transition for your company. From initiating the application process to navigating the necessary documentation, we handle it precisely and efficiently. Additionally, we provide comprehensive support for all your annual compliance needs, including accounting, statutory audits, tax filings, and ROC returns.
Simplify your Dormant Status filing today with LegallensIndia - Get Started now!
