What is Dormant Company in Company Law

Dormant refers to the state of being inactive but having the potential to become active at a later stage. A dormant company is basically a company that is inactive and not generating income. However, it can become active at a later stage subject to fulfillment of certain requirements. 

Like other companies, a dormant company is also registered with the Registrar of Companies (ROC) of the Ministry of Corporate Affairs (MCA). In this blog post, we shall discuss what is a dormant company in company law in India.

What is Dormant Company?

A dormant company in India is a registered business entity that isn’t presently engaged in any significant business activities/operations. It means a company is legally registered with ROC but isn’t currently active. However, it does have the potential to become active in the future. With that being said, some dormant companies purely exist for the purpose of holding assets or intellectual property. 

Dormant company definition is provided under Section 455 of Chapter XXIX (“Miscellaneous") of the Companies Act 2013. According to this section, a dormant company means a company formed and registered under the Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction. Such a company or an inactive company, as per the Act, may make an application to the Registrar in a prescribed manner for attaining the status of a dormant business. 

Here, inactive company means, “a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.”

What are the Conditions for a Company to be Dormant?

Dormant status is only allowed under following circumstances:

• No inquiry, no inspection or investigation has been carried out or taken up against the company.

• There are no public deposits outstanding of the company

• No defaults in payments

• There are no prosecution cases against the company

• The company has not committed a default in paying the workmen.

• The purpose of the application for dormancy is not to deceive the creditors.

• The securities of the company should not be listed in any stock exchange in or outside India.

• There are no outstanding loans of the company.

• There is no dispute in the management or ownership of the company.

List of Dormant Companies

According to Zauba Corp, the following companies are regarded as dormant under Section 455 of Companies Act 2013.:

Disclaimer: This data has been obtained from an external source. We do not assume any responsibility for its accuracy or any changes that may occur. Therefore, we request you to please verify with the original source.

How to Reactivate a Dormant Company?

To reactivate a dormant company under Companies Act, 2013, you must fulfill the following steps:

Step 1: Conduct a Board Meeting

First and foremost, the Board of Directors must pass a resolution before making an application with ROC for changing the company status to ‘active’ from the present ‘dormant’ status. Additionally, the Board must authorize a director to make the application, sign documents/forms and complete all the necessary formalities.

Step 2: Prepare & File Return (MSC 3 Form)

Prior to filing the application for change of status, it is essential to prepare a dormant-company return. For this purpose, MSC 3 Form must be used. Carefully, fill in all the necessary information and then file the form with MCA.

Step 3: File MSC 4 Form for Status Change

Using Form MSC 4, the company must file an application for change of status from dormant to active. 

Step 4: ROC Approval for Active Status

After ROC receives the application, it shall carefully go through it. If the application is found to be satisfactory and meets all the requirements, the ROC shall provide an approval certificate in Form MSC 5.

Upon completion of all the aforementioned steps, the company status will be changed from ‘dormant’ to ‘active’. After this, the company may conduct business operations like any other active company. Also, the business must comply with all the legal and regulatory requirements such as filing annual returns, conducting audits, etc.

How Long can a Company be Dormant?

The maximum period a company can hold dormant status is five financial years.

A company cannot remain dormant for more than five consecutive financial years. If it does, it will be struck off by the Registrar of Companies (ROC) from its register.

Conclusion 

A dormant company is a business entity that is inactive and not involved in business activities or financial transactions. Sometimes, dormant corporations are formed purely for the purpose of holding assets or intellectual property. In India, dormant businesses are governed by Companies Act 2013, specifically under Section 455. 

Frequently Asked Questions (FAQs)

Q1. Can a dormant business become active again?

A. Yes, a dormant business can become active again upon filing the necessary MCA forms and receiving ROC’s approval.

Q2. Which Act deals with dormant corporations in India?

A. Companies Act 2013 deals with dormant corporations in India.

Q3. Is a dormant business regarded as an inactive business?

A. Yes, a dormant business is regarded as an inactive business. However, it usually has the potential to become active again (upon receiving ROC’s approval.)

Q4. Which Section of Companies Act 2013 governs dormant companies?

A. Section 455 of the Companies Act specifically governs dormant companies.

Q5. Can ROC strike off a dormant corporation?

A. Yes, the ROC may strike off a dormant corporation from its register in case of certain circumstances.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.