Procedure To Obtain Status

Of Dormant Company Under

Companies Act, 2013
By Vikram Shah -
September 18, 2019
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A company which is a registered entity but is not currently active is called as a

Dormant company. Section 455(1) of the Companies Act, 2013, has introduced the
concept of a Dormant company as well as the provisions that let a company be a
Dormant company.
WHAT IS DORMANT COMPANY?

As per the Companies Act 2013, a company or an inactive company, that has not
made any significant accounting transaction and has been formed and registered
for a future endeavor or to be retained as an asset or intellectual property can file
an application to the Registrar in a prescribed manner to attain the status of a
Dormant company. A Dormant company:

 Can apply to revert to an active status company

 Cannot remain with the status of a Dormant company for more than five
consecutive financial years.

OBJECTIVES OF A DORMANT COMPANY

A Dormant company is formed or registered with the following goals in line:

 Has been incorporated for a future project

 Is held as an asset or intellectual property

 Has no significant transactions in particular financial year

 Is an inactive company

REASONS FOR OBTAINING STATUS OF DORMANT COMPANY

A company obtains a dormant status for many purposes, such as:

 When the business owners are preparing to launch a business, to reserve a

name for the company, it may be registered as dormant.

 When the business owners plan to restructure a business, they may obtain a
dormant status for it.
  If there is a requirement of an extended period off for the business owner
due to reasons like illness, travel, maternity leave, sabbatical, etc.

ELIGIBILITY TO BE A DORMANT COMPANY

A company which is not doing any business for a couple of financial years and
further does not intend to do any business in near future for up to five consecutive
years can apply for a Dormant company status.

CONDITIONS TO BE FULFILLED BEFORE APPLYING FOR DORMANT STATUS

A company can apply for the dormant status only if it meets the following
requirements:

 An inspection, inquiry, or investigation hasn’t been ordered or carried out

against the company. Also, there is no prosecution initiated and pending
against the company in any court of law.

 There is no outstanding payment on public deposits or interests, in the name

of the company.

 There shouldn’t be any outstanding loan on the company, secured or

unsecured. In case there is an unsecured loan, the lender’s consent should be
enclosed with the form.

 A certificate to the effect of no dispute or difference among the management

and promoters of the company has to be enclosed.

 There are no outstanding tax dues to the central or state government or local
authorities in the name of the company.

 There should be no default in the payment of the company’ s workmen’s

dues.
  The company should not be listed on the stock exchange, within or outside
India.

PROCEDURE TO GET THE COMPANY’S STATUS AS DORMANT

Step 1. First, a board meeting has to be called to fix the time and venue to call an
extraordinary general meeting of the members to pass a special resolution (at least
3/4th in value). The director is also authorized to make a general application for
dormant status with ROC in this board meeting. The notice for the public meeting is
issued. Also, in this general meeting, a Chartered Accountant or Auditor is engaged
to issue a certificate.

Step 2. Next, the extraordinary general meeting is held, and a special resolution is
passed. The exact copy of the individual decision and the notice of extraordinary
public meeting having an explanatory statement as an attachment to e-form MGT-
14 is filed with the ROC.

Step 3. Next, the company is supposed to file an application in form MSC-1

enclosing the following attachments to obtain a dormant status for the company:

 The exact certified copy for the board resolution.

 The exact certified copy for the special resolution.

 The certificate from the auditor.

 A statement of affairs, duly approved by the auditor or chartered accountant.

 The Annual Return and the Latest Financial Statement are to be compulsorily
attached in case the same is filed to the Registrar.

 A certificate to the effect of declaring no dispute among the management or

the ownership.
  If there is any loan outstanding in the name of the company, the consent of
the lender has to be attached.

EXEMPTIONS PROVIDED TO A DORMANT COMPANY

The following exceptions are provided to a dormant company:

 A dormant company does not have to show cash flow statements in the
company’s financial statements.

 The provision regarding holding a board meeting in each half of the calendar
year which has to be held at a gap of at least 90 days. Which effectively
means only two board meetings are mandatory during a year.

The provision which relates to the rotation of the auditors does not apply to a
dormant company.