Dormant Company – Reactivation, Procedure, Key Points

When a company is formed and registered for any future project or for holding an asset or intellectual property but has no relevant accounting transaction, the company in question or the one that is an inactive company shall make an application to the Registrar of Companies (ROC) for obtaining a Dormant Company status.

Here, an inactive company basically means:

• A company that has not been carrying any business or operation or
• It has not made any important accounting transactions during the last two relevant financial years or
• has not filed any financial statements or annual returns during the last two relevant financial years.

Significant Accounting Transaction can be understood as any transaction other than:

(a) The payment made by a company to the Registrar of Companies in the form of fees
(b) Payments which are made by the company in order to fulfil the requirements of this Act (Companies Act) or any other law in force
(c) Allotment of shares which has been made in order to fulfil the requirements of this Act, and
(d) Payments are made to ensure the maintenance of its office and records.

Important Provisions to be considered before making an application

Before making the application to the ROC, the company should obtain a clean chit for which the following provisions are to be considered:

(i) There is no inspection, inquiry, or investigation which has been ordered or taken up or has been carried out against the company
(ii) The is no prosecution initiated and is pending against the company under any law that is in force for the time being
(iii) The company neither has any public deposits which are outstanding nor is the company in default in making the payment thereof or payment of interest thereon
(iv) The company does not have any outstanding loans, whether secured or unsecured. Provided that if there is any outstanding unsecured loan, then the company may apply under the provisions of this rule, but only after obtaining concurrence from the lender and enclosing this concurrence obtained with Form MSC-1, which is to be filed
(v) There has not been any dispute in the management or with respect to the holding of  ownership of the company, and a certificate in this regard is enclosed with the Form named MSC-1
(vi) The company does not have in its name or is holding any liability with respect to an outstanding statutory tax, dues, duties, etc., which is payable to the Central Government or any State Government or local authorities
(vii) The company has not committed any default in the payment of their employee’s or workmen’s dues
(viii) The securities of the company are not listed on any stock exchange located within or outside India.

Procedure to Apply for Certificate of Dormant Company

1. Hold a Board meeting with two directors or a majority of directors and resolution for the status of the dormant company.
2. Now, fix a date, place, and agenda for conducting an extraordinary general meeting for the company.
3. Issue notice in writing for calling the general meeting of the company, proposing a resolution with a suitable explanatory statement.
4. Hold the Extraordinary general meeting and pass such a resolution.
5. Now, file the MGT-14 form within 30 days of holding the meeting and passing the resolution.
6. The company shall now make an application using the MSC-1 form. Along with payment of the necessary fees as specified in the Companies (Registration Offices and Fees) Rules, 2014 shall be made.
7. After considering the company’s application in Form MSC-1, the Registrar of Companies shall issue the company a certificate in Form MSC-2, which would allow the company to become a Dormant Company.
8. Every company shall be required to file a financial position duly audited by a Chartered Accountant within 30 days from the end of the financial year in Form MSC-3.
9. The register of dormant companies shall be maintained by the MCA (Ministry of Corporate Affairs) portal, www.mca.gov.in, or such other website notified by the Central Government.

Reactivation of Dormant Company

1. A dormant company which is using form MSC-4 shall make an application to the Registrar so that they can convert the status of Dormant Company into an active company.
2. The fee, which has been specifically prescribed under the rules laid down in Companies (Registration Offices and Fees) Rules, 2014, should also be paid with the application filed for the Conversion of a Dormant Company into an Active Company.
3. And after considering such application along with its validity, the Registrar shall approve the application and issue a certificate in Form named MSC-5, which would convert the status of the company from Dormant to Active company.

Key Points to be Noted

1. In case a company has not filed financial statements or annual returns for two financial years consecutively or continuously, then the Registrar shall issue a notice to such company in this regard. Along with this, he shall also enter the name of the company in the Dormant Companies register.
2. A dormant company shall have a specified minimum number of directors. It shall also file such documents along with the payment of specified fees to the Registrar to retain its dormant status. To become or change its status to an Active company, it shall make an application accompanied by such documents and fees as well.
3. The registrar has the right to strike off the name of a dormant company that fails to comply with the requirements of section 455 or with the provisions of the Companies Act.