It happens many a times that shareholders form companies but there maybe no business operations in the foreseeable future. However, the annual compliance (including directors meetings, general meetings, statutory audits, annual RoC forms) need to be completed each year. You can check the entire annual compliance list here.
For such companies, now there is an alternative – to mark their Company as ‘Dormant’ and be substantially free from most compliances.
The Companies Act, 2013 introduced the concept of a ‘Dormant company’. Dormant company under Section 455.
A Dormant company can mean a Company:
- Which has been formed for a future project (no transactions in foreseeable future)
- formed to hold an asset (no transactions in foreseeable future)
- There have been no transactions in last 2 years
- Which has not filed any balance sheet in last 2 years
Dormant company status gives the following advantages:
- Company need not hold an annual general meeting
- Considerably less compliance like not filing the annual returns – AOC-4 and MGT-7
- Holding just 2 board meetings in year (though in recent times this has been extended to other companies also)
- Company needs to file just one annual form – MSC -3
Process of making a company dormant is as follows:
- Hold a board meeting for convening notice of general meeting with draft resolution and draft explanatory statement under Section 102.
- Covening a General meeting and pass a special resolution
- File MGT -14 with special resolution
- File Form MSC-1 with required attachments, auditor’s certificate and statement of assets and liabilities
- On approval of the form, the Registrar shall issue certificate marking the Company as a Dormant Company.
Companies not eligible for applying for Dormant Status:
Please note a company shall be eligible to apply as a Dormant Company if-
(i) there is no inspection, inquiry or investigation against the company;
(ii) there is no prosecution pending against the company under any law;
(iii) the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
(iv) there are no outstanding loans, whether secured or unsecured:
Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1 ;
(v) there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;
(vi) 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.;
(vii) the company has not defaulted in the payment of workmen’s dues;
(viii) Company is not listed listed on any stock exchange within or outside India.
Contact us for more information:
If you foresee that your company may not have operations or business transactions in next few years, then you can consider making it dormant to reduce your compliance.
Corporate Compliance Team at Entrecap can professionally assist you in this matter at minimum cost.