Overview: Dormant Company In India
The Companies Act, 2013 is responsible for starting the concept of a dormant company in India. This concept is new as the 1956 Companies Act did not have any data on such companies.
The Indian legislature appears to have taken most of its cues from the statutory principles of the firm based in India.
Nevertheless, there are a few significant changes, such as the duration of dormancy, and so on. Following Indian shareholder rules, the policy for non-performing firms has been mirrored in the context of boosting and streamlining the procedure of registration and functioning of the organization.
What are Indian Dormant Companies?
As per the Companies Act of 2013, there is a new type of firm termed as unemployed firms. If a business is founded and established under this statute for a new plan, resources, or intellectual property and has no substantial accounting records, such firm or non-performing business may request to the company registrar for the specified process of obtaining dormant company.
Spending now, and shining later is a basic principle of inactive businesses. Companies have the ability to keep assets or intellectual property and utilize it later, but why would they do so? The rationale for this is cost advantage. Well, a restart is usually preferable than a new start, and inactive businesses provide this benefit. So, if a corporation decides to take a break for a valid cause, they may always resume whenever they choose, subject to specific requirements. The longer you live, the more valuable you are. As a dormant business, the corporation may not be operating, but it still maintains the legal standing of a company.
How To Get Dormant Status For Company In India?
Your firm will be termed as a Dormant Company as per the:
Loss through ROC
If any company hasn’t fulfilled its financial records or yearly returns consecutively for 2 years, the ROC can file a notice in the company’s name and send it in the name of the firm in the unemployed company’s official register.
Suo Moto Form
After meeting the required criteria, a firm can apply Suo-moto. This application is sent to the ROC on Form MSC-1 as Dormant Company. After applying, pay the fee that was set according to 2014, Registration offices & Fee Regulations.
Eligibility Criteria For Dormant Company In India
A firm can apply to get termed as a Dormant Company in India only when they meet the following conditions:
- No kind of investigations or inspections took place or were ordered against the firm.
- There hasn’t been any prosecution filed against the firm under any legislature.
- The firm should be free from any type of public debt and shouldn’t submit tax on it and neither on its interest.
- No type of loans, unsecured or secured should be pending on the company.
- There shouldn’t be any type of dispute amongst the administration or the management of the firm and with the MSC-1 form, a certificate should be attached regarding this point.
- The firm should be free from all kinds of duties, charges, fees, or taxes due to any SG, CG, or local bodies.
- The firm pays its employees their salaries without fail.
- The firm’s security should be reserved and not issued on any type of stock exchange, neither in India nor outside it.
Procedure to Setup a Indian Dormant Company
1st Step: This first step is to conduct a meeting of the board and schedule a place and time. Then in this meeting, a special resolution will be passed by the members. At this meeting of the board, the director can raise an appeal for the dormant status with the Registrar of Companies. There should be a public meeting announcement. To certify this board meeting, an auditor or a CA must be hired.
2nd Step: Now, a special general meeting is scheduled, and an extraordinary decision is given out. As the next step the decision’s copy, an explanatory announcement, and an official notice about the special meeting should be presented.
3rd Step: Now the firm has to file for the Form MSC-1 and submit the below-mentioned documents to finally obtain the firm’s status:
- Authorized copy of the extraordinary resolution
- Authorized copy of members’ decision
- A document with news is completely permitted via the chartered accountant or auditor.
- Auditor’s certificate
- A certificate that ensures that there is no dispute going on between the ownership or management.
- With the form attach a recent financial statement and a return statement.
- In case of any loan, the lender’s approval should be attached to the form.
Requirements For Dormant Company In India
Certain documents are necessary for a company to get a Dormant Company status in India. Let’s learn more about them:
- An official copy of the extraordinary order, confirming the attainment of lodging, for submitting it to the worker on MGT-14 form.
- You will need an official copy board’s decision stating the commencement of the work.
- Evidence certificate that there is no dispute between ownership or management.
- Certificate via the auditor
- The next mandatory document is the NOC through the main authority in the situation where the firm is handled by that body.
- The statement of the news should be approved by the company auditors or CA’s.
- The lender’s consent if there is any pending loan amount.
- Attach the latest financial records and annual return records
Compliance Followed By The Company After Gaining the Dormant Status
Once a firm gets the status of a Dormant Company, there are certain compliances that it needs to form. What are those? Let’s explore!
- The company once dormant, has to turn in an application of Return of Dormant Company. This application is to be audited through a CA, who must be working on the MSC-3 form. This step should be completed in a month starting from the end of every fiscal year.
- As soon as a firm becomes dormant in India, it has to reduce the number of managers working there.
- Lastly, the dormant company in India is needed to hold at minimum one board meeting of directors every year. The gap between 2 meetings should be more or equal to 90 days.
Benefits Of Dormant Company In India
When you realize what a silent business is, the first thing that comes to mind is why would somebody form a business and establish it only to designate it as dormant? The primary goal of obtaining or retaining a firm’s growth is to allow the corporation to retain its corporate existence even when it doesn’t conduct any activity.
The advantages of that situation are listed underneath the following topics:
- Company Name Protection – A copyright of a firm name is among the intellectual property belonging to an inactive firm. The firm name is secured so that no one can trade underneath the name of the inactive firm.
- Future Plan – A business may be founded to be prepared for a new plan. This indicates that the sponsors want to negotiate and hence preserve the domain name. A corporation that has purchased a lease but is awaiting other approvals before beginning a business.
- Firm History – Although not the most crucial advantage, creating a firm that originated and subsequently started a company allows it to be considered to have been well developed since its origin, even if it later formed its firm. It aids the organization in projecting a more positive image to possible buyers or/and investors.
As per the Companies Act 2013, any type of firm that is termed as dormant is a silent form of business that has not operated or made financial transactions for 2 consecutive years. Such firms can file an appeal to the ROC for getting the Dormant Company status. Then it is on the Registrar to grant or not grant the status to the company, depending on the eligibility and submission of all the required documents.
To learn more about the dormant company in India, reach out to us on the official website of OnDemand International. On our web page, you can find several articles that you can read and broaden your understanding of various business-related topics. Our skilled team will be there to assist you with every step. Contact us for any kind of help in company or trademark registration, bookkeeping, or accounting services.
A firm that is termed as Dormant is a type of firm which is not running any business activity or operations.
A firm can remain in the dormant state for up to 5 years. Before the period of 5 years extinguishes, the firm has to ensure that it applies to change its status to work, else the firm will be removed by the Registrar of Companies.