Explore all the details you need about Best Practices for Dormant Company Registration, tailored for your needs.
A dormant company, as per the Companies Act of 2013, is registered but not engaged in significant business activity, allowing it to minimize compliance while maintaining its registered status.
Dormant status filing is ideal for companies established for future ventures or asset holding without active trading. It helps reduce compliance requirements and operational reporting obligations.
At Solocorp, we specialize in guiding companies through the dormant status filing process. Our expert team ensures a seamless transition, simplifying compliance for businesses in a dormant state.
Contact Solocorp today to transition your company to dormant status and reduce compliance burdens effortlessly.
A Dormant Company, also known as a Dormant Entity or Dormant Corporation, is 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 or not yet commencing substantial business operations.
A company established under the Companies Act of 2013 for purposes such as launching a future project, holding assets, or managing intellectual property can be considered inactive if it has not carried out any significant financial activities. Such a company can apply to the Registrar for a change in status to become a dormant company, as outlined in the Act.
Significant accounting transactions include all company financial activities, with some exceptions.
Business owners may register their company as dormant while preparing to launch their business, serving as a means to reserve the company name.
In cases where business owners plan to restructure their operations, obtaining dormant status for the company can be beneficial.
If business owners anticipate an extended period away from operations due to illness, travel, maternity leave, sabbatical, etc., they may choose to obtain dormant status for the company.
Ensures the company name is protected during inactivity, preventing others from registering the same or a highly similar name.
Significantly lowers the regulatory burden and compliance obligations under the Companies Act 2013, making maintaining the company easier and more cost-effective.
Offers the flexibility to quickly resume business activities when opportunities arise without establishing a new corporate entity.
Only a select few provisions of the Companies Act apply to dormant companies, simplifying legal compliance.
Streamlines the process of filing annual returns, requiring less detailed information compared to active companies.
Exempts the company from the obligation to rotate auditors, which is required for active companies to ensure auditor independence.
Requires only one board meeting every six months, reducing the administrative burden associated with more frequent meetings required for active companies.
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:
The following conditions are to be satisfied before applying for dormant company status:
There must be no ongoing inspections, inquiries, or investigations against the company.
There should be no ongoing prosecutions under any law.
The company should have no outstanding public deposits or defaults in payments or interest thereof.
There should be no outstanding secured or unsecured loans.
There should be no disputes regarding the management or ownership of the company, and a certificate must accompany the application.
All statutory taxes, dues, duties, etc., to the Central, State Government, or local authorities must be cleared.
The company’s securities must not be listed on any stock exchange within India or internationally.
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.
Forms to be used: MGT-14
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: A certified true copy of the board resolution for dormant status, A certified true copy of the special resolution for dormant status, Auditor’s certificate, Statement of affairs verified by a Chartered Accountant or the company's auditors, Approval or No Objection Certificate from any regulatory authority, if applicable, If filed with the ROC, the company's latest financial statement and annual return, Consent from lenders if there are outstanding loans.
Forms to be used: MSC-1
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.
Forms to be used: MSC-2
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: A certified true copy of the Board resolution authorising the filing. A duly audited financial position statement by a practising Chartered Accountant. Any other documents deemed necessary.
At Solocorp, 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.