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PROCESS FOR DORMANT COMPANY

PROCESS FOR DORMANT COMPANY

PROCESS TO GET STATUS OF DORMANT UNDER COMPANY ACT- 2013

Section-455 of Companies Act, 2013 talks about a New Provision Calls “DORMANT COMPANY”. This concept was not there in Companies Act, 2013. Another Name of this concept by Professionals is “ASSET SHIELDING CONCEPT UNDER COMPANIES ACT 2013”.A Dormant Company offers excellent advantage to the promoters who want to hold an asset or intellectual property under the corporate shield for its usage at a later stage. For instant: if a promoter wants to buy lands now for its future project at a comparatively lesser price, he may do the same through dormant company so that he can use the land for its future project. Thus, dormant company status is a new phenomenon in the Companies Act 2013 and is an excellent tool for keeping assets in the company for its future usage. A dormant company may be either a public company or a private company or a one person company.

There are around 1.5 lakh dormant companies present in Indian corporate sector according to recent government data which are either incorporated for future project or to hold only IPRs or assets. Some are yet to carry out the operations or are in operational stage for a fair period of time. It is not always that by dormant companies it is meant that they are defunct. They were just not in operation because of the nature of business they perform.

Certain companies, due to the nature of their business, may not be able to start any business, for a long time from the date of incorporation as for instance any business for creation of intellectual property or for a future project and has no significant accounting transaction. Such a company may be an “Inactive company”.

Construction Companies/ Real Estates companies Incorporate New companies to Hold Land/ Properties for future projects. This concept is Beneficial for them, by this Concept they can Incorporate Company and Purchase Property/Land in that company and get status of Dormant Company, if a company get status of dormant company there are less compliance in dormant company in comparison of active company. It will help to save cost of compliances for inactive companies.

Bare Act Language: According to Section 455 of the Companies Act 2013, where a company is formed and registered under this Act for a future projector 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.

Procedure for Obtaining Status of “DORMANT COMPANY” is given below: Before discussion of Process of Obtaining Status of Dormant Company Let’s Discuss some important TERMS:

§  INACTIVE COMPANY:  “Inactive Company” means a company which,

Ø  has not been Carrying on Any Business or operation, or

Ø  has not made any Significant Accounting Transaction During The Last Two Financial Years, 

Ø  has not filed Financial Statements and Annual Returns during the LAST TWO FINANCIAL YEARS.

SIGNIFICANT ACCOUNTING TRANSACTION:  “Significant Accounting Transaction” means any transaction other than

Ø  Payment of Fees by a company to the Registrar;

Ø  Payments made by it to fulfill the requirements of this Act or any other law;

Ø  Allotment of shares to fulfill the requirements of this Act; and

Ø  Payments for maintenance of its office and records.

Above Mention Transactions are excluded fITF3C/em> Significant Accounting Transactions. If a company has made above mention transactions in last two year then also that company will fall under definition of Inactive Company.

THE COMPANY MAY CARRY FOLLOWING BUSINESS TRANSACTION IN THE PERIOD OF DORMANT:”

§  FINANCIAL STATEMENT:  The term “FINANCIAL STATEMENT” as per section 2(40) mean;

Ø  Balance-Sheet at the end of Financial year;

Ø  Profit & Loss Account or Income or Expenditure account, as may be applicable;

Ø  Cash Flow for the Financial year; and

Ø  Explanatory note attached to any document in sub-clause (i) or (ii) above;
* As per Sub- Section 4 Section- 455:  Where a company Not Filed or Fails to File Financial Statements or Annual Return for TWO (2) Financial Year consecutively, The Registrar of Company (ROC) shall issue a notice to that company and enter the name of such company in register maintain for Dormant Company.

Before applying for Status of Dormant Company following Conditions required to be fulfilled:

ü  No inspection, inquiry or investigation has been ordered or taken up or carried out against the company;

ü  The company is neither having any public deposits which are outstanding nor is the company in default in payment thereof or interest thereon;

ü  No prosecution has been initiated or pending against the company under any law;

ü  The company has not defaulted in the payment of workmen’s dues;

ü  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.;

ü  The application has not been made with an objective to deceive the creditors or to defraud any other person;

ü  The securities of the company are not listed on any stock exchange within or outside India;

ü  The company is not having any outstanding loan, whether Secured and Unsecured- But if company has any Outstanding Unsecured Loan then the company may apply for status of DORMANT only after obtaining NOC from the lender. Such NOC required to be attached in the Form which require to file with ROC.

ü  There is No Dispute in the Management or Ownership of The Company; A certificate in this regard required to taken from Management. Such Certificate required to be attached in the Form which require to file with ROC.

PROCESS FOR OBTAINING STATUS OF DORMANT COMPANY:

v Call a Board Meeting- to call EGM.

§  Authorization to director to make application for Dormant with ROC.

§   Issue Notice of General Meeting

§  Engage an Auditor/ Chartered Accountant to issue certificate.

v Hold Extra Ordinary General Meeting

§  Pass Special Resolution.

v MUST File E-form MGT-14 with ROC.

Attachment:

a.      CTC of Special Resolution.

b.      Notice of EGM along with Explanatory Statement.

v After filling of form MGT-14, File Form MCS-1 with the registrar.

Attachments:

a.      CTC of Board Resolution.

b.      CTC of Special Resolution.

c.      Auditor’s Certificate.

d.      Statement of Affairs duly certified by Chartered Accountant or Auditor(s) of the company.

e.      Latest Financial Statement and Annual Return of the Company is mandatory to attach In Case The Same Is Filed To Registrar.

f.        Certificate regarding no dispute in the management or ownership

g.      Consent of lender, if any loan is outstanding.

Processing Type

The eForm will be auto approved (STP).

 Email

When an eForm is approved/ rejected by the authority concerned, an acknowledgement of approval/rejection with related documents is sent to the user in the form of an email to the email id of the company.

Certificate

A system generated Certificate of status of a Dormant Company is issued by Registrar and sent to the user as an attachment to the email, after approval is granted. Once the form is approved the status of the company shall be changed to ‘Dormant under section 455’

(Application to ROC for obtaining the status of dormant company)

The Companies (Registration Offices and Fees) Rules, 2014

Application madeOther than OPC & Small companyOPC & Small company
(i) By a company having an authorized share capital of:a) Up to Rupees 25,00,000b) Above Rupees 25,00,000 but up to Rupees 50,00,000

c) Above Rupees 50,00,000 but up to Rupees 5,00,00,000

d) Above Rupees 5,00,00,000 but up to Rupees 10 crore or more

e) Above Rupees 10 crore

 

2,0005,00010,000

15,000

20,000

1,0002,500N/A

N/A

N/A

(ii)By a company limited by guarantee but not having a share capital2,000N/A

NOTE:

 I.FORMS REAQUIRE TO FILE WITH ROC AFTER STATUS OF DORMANT:

After Getting certificate of Dormant Company Forms which company can file with ROC are:

ü  A dormant company shall file a declaration annually in Form No. MSC-3 within thirty days from the end of each financial year.

ü  Company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company.

ü  If company wants to get Active status to be file e-form MSC-4 with ROC, then gets active company status.

ü  If company carrying any “Significant transaction” during the dormant period, the directors shall within 7 days from such event, file an application with ROC in e-form MSC-4, for obtaining the status of an active company.

II.The company may carry following business transaction in the period of Dormant:

(a) Payment of fees by a company to the Registrar;

(b) Payments made by it to fulfill the requirements of this Act or any other Law;

(c) Allotment of shares to fulfill the requirements of this Act; and

(d) Payments for maintenance of its office and records.

III. One Person Company (OPC) can also be registered as a dormant company under section 455.

IV.    OTHER PROVISONS:

ü  A dormant company shall have such Minimum Number of Directors. {A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company}

ü  File such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status.

ü  A Dormant Company need not enclose cash flow statements in its annual accounts.

ü  A Dormant Company is required to convene at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. Section 173(5)

V. A Dormant Company formation can prove useful when an individual wishes to stop trading for a specific period of time.

For Example: if an individual has been running a successful company but wishes to move abroad, he can choose to preserve his company so that he can restart it at a later date by just doing some negligible formalities like registering his company as a Dormant Company with the registrar. Since a Dormant Company remains in the books of registrar for a considerable time it provides the company with a sense of maturity and might help to boost its credit worthiness.

 PROCESS FOR DORMANT COMPANY

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