282 week ago — 10 min read
Background: Acquiring a ‘dormant’ status is beneficial for companies that are not operational as it reduces compliance costs. In her previous article, Priyanka Srivastava, Founder-CEO of Camattersonline shared the key takeaways from the Angel Tax proposal. In this article she list all the details related to the process of acquiring ‘dormant’ status for a non-operational business..
Section-455 of Companies Act, 2013 has introduced the concept of “Dormant Company” or "Asset Shielding Concept". A Dormant Company offers excellent advantages to promoters who want to hold an asset or intellectual property under the corporate shield for its usage at a later stage.
Certain companies, due to the nature of their business, may not be able to start any business, for a long time from the date of incorporation or have no significant accounting transactions. This concept is useful for construction companies or real estate companies which incorporate new companies to hold land for future projects. If a company gets status of dormant company, there are less compliances to be followed. Hence it helps in saving cost of compliance for inactive companies.
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A dormant company can also prove useful when an individual wishes to stop trading for a specific period of time. For example, if an individual has been running a successful company but wishes to move abroad, they can choose to preserve his company so that they can restart operations at a later date.
A dormant company may be either a public company or a private company or a one person company.
Key definitions to understand the scope of this concept better
Inactive company
An Inactive Company means a company which,
Significant Accounting Transaction
Significant Accounting Transaction means any transaction other than:
Financial Statement
The term ‘financial statement’ as per section 2(40) means:
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Before applying for status of Dormant Company, following conditions should be fulfilled:
Process for obtaining status of dormant company
1. Call a Board Meeting to organise EGM
Authorization to director to make application for Dormant with ROC.
Issue Notice of General Meeting.
Engage an Auditor/ Chartered Accountant to issue certificate.
2. Hold Extra Ordinary General Meeting to pass special resolution.
3. File E-form MGT-14 with ROC.
Attachment: CTC of Special Resolution, Notice of EGM along with explanatory statement.
4. After filling of form MGT-14, File Form MCS-1 with the registrar.
Attachments:
Processing sequence
The eForm will be auto approved (STP).
Email: When an eForm is approved/ rejected by the authority concerned, an acknowledgement of approval/rejection with related documents is sent to the user in the form of an email to the email id of the company.
Certificate: A system generated certificate of status of a Dormant Company is issued by Registrar and sent to the user as an attachment to the email, after approval is granted. Once the form is approved the status of the company shall be changed to ‘Dormant under section 455'.
Forms required to be filed with ROC after status of dormant
After getting certificate of Dormant Company, a company has to file the following forms with ROC:
Dormant Companies are also exempted from the following
Compliances by a dormant company
Notes:
The Registrar on its own motion can also change the status of a company to dormant if it has not filed financial statements or annual returns for two financial years consecutively. The Registrar will do so only after giving the company a reasonable opportunity of being heard.
Proviso to Rule 8 of the Companies (Miscellaneous) Rules, 2014 says that a dormant company cannot remain as a dormant company for more than 5 consecutive financial years. If it remains so, then the Registrar shall commence the process of striking off the name of the company from the Records, i.e. the company will be removed. So maximum tenure for a dormant company is 5 consecutive financial years.
Also read: Mandatory compliances for a Private Limited Company in India
Image courtesy: shutterstock.com
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Priyanka SrivastavaFounder and Owner of caMattersOnline, one of the fastest growing organization in the Finance and Accounting space in the Industry. caMattersOnline offers compliance service...
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