Dormant Status Filing
Filing for dormant company status is a strategic move for inactive companies to ensure MCA compliance with a reduced burden. The process, governed by the Companies Act, involves filing Form MSC-1 to become an inoperative company.
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Dormant Company Status: The Definitive Guide
A dormant company is a registered entity that is not engaged in any significant business activity or operations. As per the Companies Act, 2013, an inactive company can apply for dormant status to significantly reduce its compliance burden while preserving its name and legal existence for future use.
FileMyFirm specializes in the dormant company registration process, providing expert guidance for a seamless and compliant transition.
Benefits of Dormant Company Status
Transitioning an inactive company to dormant status offers several key advantages:
- Reduced Compliance: Dormant companies have fewer statutory obligations, such as holding only one board meeting every six months.
- Cost Savings: Lower compliance requirements mean reduced administrative expenses on filings, audits, and other procedural tasks.
- Name Preservation: The company’s name and identity are protected, preventing others from registering a similar name while the business is inactive.
- Flexibility: The company can be easily converted back to “active” status when a new project or business opportunity arises.
How to Make a Company Dormant: The Procedure
To obtain dormant company status, a company must not have engaged in any significant accounting transactions (other than filing fees, share allotments, and maintenance payments) for the last two financial years. The procedure involves several steps and mandatory filings with the Registrar of Companies (ROC).
1. Board Resolution and Special Resolution
First, the Board of Directors passes a resolution to approve the change in status. Then, a special resolution must be passed by the shareholders in a General Meeting, or a consent from at least three-fourths of the shareholders must be obtained.
2. File Forms MGT-14 and MSC-1
The special resolution for dormant status must be filed with the ROC using Form MGT-14 within 30 days of its passing. Subsequently, the company files Form MSC-1 to officially apply for the dormant status.
3. ROC Approval
Upon reviewing the application, the ROC issues a certificate in Form MSC-2, officially granting the company dormant status.
Mandatory Conditions
Before applying, a company must ensure:
- There are no outstanding inspections or investigations against it.
- It has no outstanding public deposits or loans (unsecured loans require lender consent).
- All statutory taxes and dues have been cleared.
Annual Compliance for a Dormant Company
Obtaining dormant status does not eliminate all compliance requirements. A dormant company must:
- File a simplified annual return using Form MSC-3 within 30 days of the end of each financial year.
- Undergo an annual statutory audit.
- File its Income Tax Returns.
It is important to note that a company cannot remain dormant for more than five consecutive years.
Simplify Your Dormant Company Compliance with FileMyFirm
The process of converting a company to dormant status is complex and requires meticulous documentation. FileMyFirm provides end-to-end assistance, from preparing board resolutions to filing the necessary forms with the ROC. We ensure your company achieves dormant company status with full legal compliance, allowing you to reduce your burden and focus on future plans.
Frequestly asked questions ( FAQ )
A dormant company is a registered entity that is currently not engaged in any significant business activity or operations. The purpose of applying for dormant status is to allow an inactive company to reduce its compliance burden and costs (auditing, filings, etc.) while preserving its name and legal existence for future use.
A company can only apply for Dormant Status if it has not engaged in any significant accounting transactions (other than payments for filing fees, share allotments, and maintenance) for the last two financial years.
Additionally, the company must ensure:
There are no outstanding inspections or investigations against it.
It has no outstanding public deposits or secured loans. (Unsecured loans require the lender’s consent).
All statutory taxes and dues have been cleared.
Even after obtaining dormant status, a company must still comply with certain obligations, including:
Filing a simplified annual return using Form MSC-3 within 30 days of the end of each financial year.
Undergoing an annual statutory audit.
Filing its Income Tax Returns.
Holding at least one board meeting every six months.
The application for Dormant Company Status is made by filing Form MSC-1 with the Registrar of Companies (ROC). The ROC, upon approval, issues a certificate in Form MSC-2.
A company cannot remain dormant for more than five consecutive years. If it stays dormant beyond this period, the Registrar of Companies (ROC) may initiate the process of striking off the company’s name.