A large number of firms incorporated in India have gone out of business due to business suspensions or a lack of significant transactions. To ensure that such entities remain compliant with the law, the Companies Act, 2013, provides an alternative of registering them as dormant companies. But upon restarting business operations, it would have to be reinstated through due legal process.
In the case of a company revival, certain statutory documents, licenses, and formalities required by the Ministry of Corporate Affairs (MCA) must be complied with. This blog describes the complete reactivation process, applicable laws, required documents, and significant compliance requirements for a dormant company in India.
Meaning of Dormant Company
Section 455 of the Companies Act, 2013 provides for a company to become a dormant company if it has not made any material accounting transactions in the preceding two years. It is a company registered with the Registrar of Companies (ROC) but does not conduct any business.
The provision assists the promoters in maintaining a corporate structure for future use without incurring high compliance expenses or annual filings. But once the company has decided to resume operations, it must change its dormant status to an active one after a reactivation process.
Reasons for Reactivating a Dormant Company
Companies tend to reactivate due to a number of reasons, including resuming business operations, venturing into new projects, or making business opportunities available under the same registered entity. These are other reasons that involve attracting investors, bidding on contracts or reviving financial transactions.
Reactivation further enables the company to use the existing corporate identity, bank accounts and statutory registrations and avoids the creation of a new company. This will make it more convenient and economical.
Laws Regulating Reactivation
Section 455(5) of the Companies Act, 2013 and Rule 8 of the Companies (Miscellaneous) Rules, 2014, apply to the reactivation of a dormant company.
Under such provisions, a firm desiring to acquire the status of an active firm is required to submit an application to the Registrar of Companies (ROC) in a prescribed form together with the payment of the required fees, as well as the required compliance documents.
Step-by-Step Process of Reactivating a Dormant Company
Step 1: Board Meeting
The initiation of the reactivation process is to hold a Board Meeting where the idea of transforming the company to active status is to be discussed. Board Resolution should be passed where the application is to be made to the ROC by a director or professional.
Step 2: Application Preparation
The authorised director or professional is required to prepare and submit the reactivation application in Form MSC-4 at the ROC. This form should be accompanied by all the required documents, like a copy of the Board Resolution, up-to-date financial statements and other documents.
Step 3: Remittance of Prescribed Fees
The application should be done with the required government charges as stated under the Companies (Registration Offices and Fees) Rules, 2014. Failure to pay on time or failure to submit on time can lead to the rejection or resubmission of the application.
Step 4: Filing of Form MSC-4
Form MSC-4 should be electronically submitted on the MCA portal by the company. This form includes the company name, CIN, date of incorporation, reasons behind reactivation and declaration of compliance. The director should sign the form digitally and approve it by a practising professional like a Chartered Accountant (CA), Company Secretary (CS) or Cost Accountant.
Step 5: ROC Verification
After the form is received, the Registrar of Companies (ROC) will check the documents and make sure that the company has met all the required compliance prerequisites. ROC might request clarification or further information in case it is necessary to approve it.
Step 6: Issuance of Certificate
Once the documents have been checked and the compliance is satisfactory, the ROC provides the Certificate of Reactivation in Form MSC-5. Such a certificate formally reinstates the company into active operation, and thus, it should be able to get back to normal business operations.
Documents Required for Reactivation
The documents required during the reactivation of a dormant company are usually the following:
- Certified copy of the Board Resolution that permits reactivation.
- Recent Balance sheet and financial statements.
- Incorporation certificate of the company.
- copy of Form MSC-1 (dormant status application).
- Director Declaration about compliance.
- Evidence of the payment of annual fees and statutory dues.
- The authorized director and professional certification are signed digitally.
All the pending filings that the company has should also be done before applying to be reactivated.
Post-Reactivation Compliance
As soon as the company in question is reactivated, it will fall under all the compliance requirements of an active company as laid out in the Companies Act, 2013. This includes:
- Annual returns and financial statements.
- Conducting Board Meetings and Annual General Meeting (AGMs).
- Keep statutory registers and books of accounts.
- Adherence to relevant tax, GST and labour regulatory requirements.
The company should also keep in mind that, after reactivation, it must file Form AOC-4 and MGT-7 on time each financial year.
Penalty for Non-Compliance
In case a company does not restart a business according to the established reactivation procedure, it might be punished according to Section 455(6) of the Companies Act, 2013. The company and its officers in default can pay a fine of not more than Rs. 10,000 and also a fine of Rs. 1,000 per day for persisting with the default.
This is why the process of reactivation should be done legally in order to resume any operations.
Conclusion
Reactivation of a Dormant company is a straightforward legal procedure that allows businesses to resume operations without disrupting the establishment of a new company. It provides flexibility, cost-effectiveness, and the opportunity for entrepreneurs and companies to rejuvenate their business operations.
A dormant company regains its active status and can resume full-scale operations by adhering to the prescribed procedure, registering Form MSC-4, and obtaining the Registrar of Companies’ approval.
The proper interpretation of such reactivation processes will ensure they comply with the law and avoid penalties or other legal issues in the future.
