DORMANT COMPANY REGISTRATION
Under the Companies Act, 2013, a dormant company is one that is legally registered but not actively carrying out any significant business or operational activities. Such companies are often incorporated to hold assets, own intellectual property, or prepare for future projects.
Obtaining dormant status allows companies to maintain legal existence while reducing their compliance and reporting burden under the Act.
If your company is temporarily inactive or awaiting a suitable opportunity to commence operations, applying for dormant status can be a cost-effective and compliant way to retain its corporate identity.
WHAT IS A DORMANT COMPANY?
A Dormant Company (or Dormant Entity) is a registered company that has not been involved in substantial business activities or financial transactions during a specific financial year.
This status may arise when:
- The company is incorporated for a future project or venture.
- The company exists solely to hold assets or intellectual property.
- There have been no significant accounting transactions for a financial year.
- The company remains inactive for strategic or temporary reasons.
Dormant status can be maintained for a maximum of five consecutive financial years, after which the company must either become active or face possible removal from the register.
OVERVIEW UNDER THE COMPANIES ACT, 2013
Section 455 of the Companies Act, 2013 allows companies that have been incorporated for future purposes or have remained inactive to apply to the Registrar of Companies (ROC) for dormant status. This provision helps companies remain compliant without fulfilling the full set of annual statutory requirements applicable to active companies.
MEANING OF INACTIVE COMPANY
An Inactive Company refers to a company that:
- Has not carried on any business or operations during the last two financial years, and/or
- Has not filed financial statements and annual returns during those two years.
Significant Accounting Transactions
“Significant accounting transactions” exclude:
- Payments made to the ROC or for compliance with legal requirements.
- Transactions relating to share allotment.
- Payments for maintaining the company’s office or records.
REASONS FOR OBTAINING DORMANT STATUS
A company may choose dormant status for several practical reasons, including:
- Name Reservation: To reserve a company name while preparing to start operations.
- Business Restructuring: When the company is undergoing internal reorganisation or restructuring.
- Extended Absence: When promoters or key personnel anticipate extended leave due to travel, illness, or personal reasons.
BENEFITS OF DORMANT COMPANY STATUS
Transitioning to dormant status offers multiple advantages under the Companies Act, 2013:
- Preservation of Company Name: Prevents others from registering a similar or identical name.
- Reduced Compliance Burden: Minimises filing requirements and statutory obligations.
- Flexibility for Reactivation: Allows quick revival when business activities resume.
- Limited Applicability of the Act: Only select provisions apply, simplifying compliance.
- Simplified Annual Return Filing: Annual returns are less detailed compared to active companies.
- No Auditor Rotation: Exempt from the mandatory auditor rotation rules.
- Bi-Annual Board Meetings: Requires only one board meeting every six months.
ELIGIBILITY AND PREREQUISITES FOR DORMANT STATUS
Under Section 455(5) of the Act and Rule 6 of the Companies (Miscellaneous) Rules, 2014, the company must meet the following criteria:
Minimum number of directors
- Public Company – 3 Directors
- Private Company – 2 Directors
- One Person Company – 1 Director
Shareholder approval
A special resolution must be passed in a general meeting or with written consent from at least three-fourths of shareholders (in value).
Application conditions
Before applying, ensure that:
- There are no ongoing inspections, investigations, or prosecutions.
- No public deposits or unpaid dues exist.
- No outstanding secured or unsecured loans, unless lender consent is obtained.
- No management disputes exist.
- All statutory taxes and dues are cleared.
- The company’s securities are not listed on any stock exchange.
Note: If unsecured loans exist, lender consent must be filed along with Form MSC-1.
ANNUAL COMPLIANCE FOR DORMANT COMPANIES
While compliance requirements are reduced, certain obligations remain mandatory:
- Accounting and Financial Statements
- Maintain proper books of accounts.
- Conduct one board meeting every six months.
- Keep the registered office active and functional.
- Statutory Audit
- A statutory audit must still be conducted annually, though auditor rotation is not required.
- Tax Returns
- File applicable TDS, GST, and Income Tax Returns as per law.
- ROC Annual Returns
- File Form MSC-3 annually within 30 days after the end of the financial year, along with:
- Certified copy of Board Resolution.
- Audited financial statement verified by a practising CA.