Dormant Company
The concept of dormant companies under the Companies Act 2013 represents a unique facet of corporate law aimed at providing flexibility to temporarily inactive companies or not engaging in business operations. This status allows such companies to maintain their legal existence without the burden of compliance requirements. This article will delve into the definition, eligibility criteria, compliance obligations, advantages, and the process of declaring a company dormant under the Companies Act 2013.
Definition of Dormant Company:
As per the Companies Act 2013, a dormant company has been formed and registered under the Act for future projects or to hold an asset or intellectual property with no significant accounting transactions. Essentially, a dormant company is not actively conducting business operations and has minimal financial activity.
Eligibility Criteria:
To qualify as a dormant company, certain eligibility criteria must be met. According to Section 455 of the Companies Act 2013, a company can apply to be declared dormant if:
- It has been incorporated and has not commenced any business activity since its incorporation.
- It has not made significant accounting transactions during the last two financial years.
- It has no significant accounting transactions in the current financial year up to the date of the application for dormant status.
Compliance Obligations for Dormant Companies:
While dormant companies enjoy a reprieve from regular compliance requirements, they are still subject to specific obligations to maintain their dormant status. Some of the key compliance obligations for dormant companies include:
- Annual Return Filing: Dormant companies must file annual returns with the Registrar of Companies (RoC) per the prescribed schedule.
- Financial Statements: Although dormant companies do not engage in significant business transactions, they must prepare and file financial statements with the RoC.
- Return of Dormant Company: Dormant companies must file a “Return of Dormant Company” annually, providing details of the financial position at the end of that financial year.
Advantages of Dormant Status:
The dormant status offers several advantages to companies that are temporarily inactive:
- Reduced Compliance Burden: Dormant companies are relieved from various compliance requirements that active companies must adhere to, such as holding regular board meetings.
- Cost Savings: By acquiring dormant status, companies can save costs associated with compliance, audit, and other operational expenses.
- Preservation of Name: Maintaining dormant status allows companies to preserve their business name, which can be crucial for future use.
- Quick Reactivation: Dormant companies can reactivate and resume operations without undergoing the lengthy incorporation process.
Procedure for Declaration of Dormant Status:
To obtain dormant status, a company must follow a specific procedure outlined in the Companies Act 2013:
- Board Resolution: The board of directors must pass a resolution recommending the company’s status be changed to dormant.
- Shareholder Approval: The shareholders must approve the resolution passed by the board in a general meeting.
- Application to RoC: The company must file an application with the RoC in the prescribed form along with the required fee.
- Registrar’s Approval: Upon receiving the application, the RoC will examine it and, if satisfied, grant the status of a dormant company.
Conclusion
The concept of dormant companies under the Companies Act of 2013 provides a pragmatic approach to corporate regulation by accommodating temporarily inactive companies. This status not only offers flexibility to businesses but also ensures that regulatory requirements are met without imposing unnecessary burdens on dormant entities. Understanding the eligibility criteria, compliance obligations, advantages, and procedural aspects of obtaining dormant status is essential for companies seeking to leverage this unique provision in the corporate legal landscape. As businesses evolve and adapt to changing circumstances, the concept of dormant companies remains a valuable tool for strategic planning and efficient corporate governance.
