What are the Benefits of Dormant Company?
The concept of a Dormant Company has been introduced recently under Section 455 of Companies Act, 2013. In simple terms, Dormant Company implies to that Company which is inoperative or inactive. It is a perfect getaway of Company strike off or closure that results in permanent shut down of the business. A Dormant Company enables the Promoters who seek to start a company for the future project or hold an asset/ intellectual property rights without having any significant Accounting transaction. To yield the benefits of Dormant Company, a Company needs to file an Application to Registrar (ROC).
An overview of Dormant Company
A Dormant Company lies on the core foundation of invest now and shine later. The concept of Dormant is inspired by the common phenomenon of Corporate sector, which states the longer a Company exists, the higher it will be valued. Therefore, the primary objective of retaining the dormant status for a Company is to maintain its corporate status regardless of not carrying any business.
Key benefits of Dormant Company
It is better to restart than to start from scratch and only Dormant Companies get such leverage. If someone wants to take a backseat for a while to restart the business later on, then one must get a dormant status. A Dormant Company might not be active or operational, but it remains in the eyes of the law. Here are the primary benefits of Dormant Company:
- Safeguards and protects the Company’s name.
- Useful to start-up with future projects.
- Helps to hold a fixed asset or an intellectual property.
- Less compliance compared to the Company closure or strike off process.
- Easy to reactive and get the active status.
- No Dormant Company is liable to pay any taxes until it is reactive.
- No need to re-spend on Incorporation cost.
Preconditions to get a status of Dormant Company
Before a Private, Public or One Person Company applies to obtain the status of Dormant Company, it has to meet the provisions listed below:
- There must be no inquiry, inspection or investigation taken up/ordered/carried out or any prosecution pending or initiated against the Company under any law.
- The Company should neither have any outstanding deposits nor defaulted in the payment of the interest or any amount.
- The Company must not have any outstanding loan (Secured or Unsecured). In case, the outstanding loan still exists, the Company can still apply after taking an approval from the lender and enclose the same with Form MSC-1.
- There should be no dispute/conflict in the ownership or the management of the Company and enclose a Certificate in regards to it with Form MSC-1.
- There should be no outstanding dues or Statutory Taxes left by the Company to be payable to the State Government, Central Government or Local Authorities. Moreover, the Company should not have defaulted in the payment of workmen’s dues;
- The securities of the applicant Company must not be listed on any Stock Exchange within or outside India. Hence, a Listed Company cannot apply under Section 455.
Once the Company fulfils all the conditions mentioned above, it can harvest the benefits of Dormant Company.
Post-conditions after incorporating a Dormant Company
To maintain its dormant status, the Company has to follow the terms mentioned below:
- Minimum number of Directors: A Dormant Company shall have to maintain at least 3 Directors in case of a Public Company, 2 for Private Company and 1 for OPC.
- No. of Board Meetings: The Dormant Company is required to conduct 1 Board Meeting in every half of a calendar year. Also, the gap amid the two Meetings should not be less than 90 days.
- Filing of Annual Return: The Company shall have to file Annual Returns that indicate its financial position. It must be duly audited by a CA in practice in e-Form MSC-3 within 30 days from the end of each financial year.
Steps by step procedure to make a Company Dormant
Since there are many benefits of a Dormant Company, so a Company has to undertake the steps given below to gain a dormant status:
- The first step to change the active status to dormant or register a Company as dormant is to contact the Corporation Tax Office of HMRC. Submit an Application stating the date from which your Company will be dormant.
- One can find the contact details of a Corporation Tax Office from any official letter of HMRC which has been delivered to your Registered Office; else you can reach out to your nearest Tax Office.
- You will receive a notification stating the acceptance of your dormant status at your Registered Office address within a period of 15 days.
- HMRC will send a ‘Notice to deliver a Company Tax Return’ in case your Company was trading previously. You have to send the same to HMRC online before your Company is considered dormant. Further, you have to pay any outstanding Corporation Tax, close your payroll and cancel your VAT (if applicable).
- Prior to declaring the Company’s dormant status, you must ensure that all the outstanding bills have been paid and settle all the Accounts.
- After satisfying all the above, you don’t have to contact HMRC again until your Company restarts trading.
- When your Company becomes dormant, you don’t have to directly notify Companies House. However, you need to file a Confirmation Statement and submit dormant Accounts each year. This way, the Companies House will remain informed about your Company’s dormant status.
Conversion of a Dormant Company to Active Company
Here is the process of reactivating a Dormant Company:
- Prepare an Application to attain the active status in Form MSC-4 and submit the fees prescribed under Companies (Registration Offices and Fees) Rules, 2014.
- In case your Company has remained dormant for 5 consecutive years, the Registrar may initiate to strike off your Company’s name.
- After proper assessment of your filed Application, Registrar will issue a Certificate in Form MSC-5 confirming the active status of your Company.
If a Dormant Company continues to function as an Active Company, the following steps are to be followed:
- When a Dormant Company does any act mentioned in the Application Form MSC-1, in such case, the Directors shall have to apply to obtain an active status within 7 days under which that act was committed.
- Once the ROC verifies the Application, he/she shall issue a Certificate in Form MSC-5 and grants the status of an active Company.
- Post inquiry, if Registrar finds that the Dormant Company has been functioning in actual, then ROC may provide a reasonable opportunity of being heard and further initiate proceedings against the Dormant Company under Section 206 of Companies Act 2013.
If you want to make your Company dormant, seek the guidance of Swarit Advisors.
Also, Read: Procedure for Private Limited Company Registration.