Overview of Dormant Company Status:
In the corporate world, not all companies remain actively engaged in business transactions. Some might opt to become 'dormant' to reduce operational complexities while preserving their legal status. This detailed guide explains the procedure for converting an active company into a dormant one under the provisions of the Companies Act, 2013 in India.
The concept of a dormant company is specifically designed for companies that are currently inactive but may want to resume activities in the future. Obtaining dormant status can help a company retain its registered entity status with minimal compliance requirements. This status is particularly beneficial for companies that hold assets like real estate or intellectual property rights without engaging in daily business activities.
Eligibility Criteria:
To qualify for dormant status, a company must satisfy one or more of the following conditions:
1. It should be inactive.
2. It should not have been carrying any business or trading activity for the past two years.
3. It should not have made any significant accounting transactions during that period.
4. It should not have filed annual returns with the Registrar of Companies (ROC) for the last two years.
Time Frame for Conversion:
The entire process to convert an active company into a dormant one typically takes about 2-3 weeks, provided all documents are prepared and submitted timely.
Step-by-Step Guide to Obtaining Dormant Status:
Step 1: Convene a Board Meeting
Initiate the process by conducting a Board of Directors meeting to pass a resolution for filing an application for dormant status. This resolution should also authorize a director to act on behalf of the company and handle necessary formalities.
Step 2: Issue EGM Notice
Notify all shareholders about an Extraordinary General Meeting (EGM), including an explanatory statement detailing why the board proposes the status change. The notice must be issued as per the stipulated secretarial standards.
Step 3: Get CA Certification of Statement of Affairs
Before the EGM, the company must obtain a certification of its Statement of Affairs from a Statutory Auditor or a practicing Chartered Accountant.
Step 4: Conduct EGM
Hold the EGM on the scheduled date to pass a special resolution with the required quorum for changing the company status to dormant.
Step 5: File MGT-14
File the special resolution passed at the EGM with the ROC using Form MGT-14, including a certified true copy of the resolution and the EGM notice, within 30 days of the meeting.
Step 6: Application for Change in Status
Submit Form MSC-1 to the ROC, accompanied by all resolutions, declarations, and necessary consents, including those from creditors if there are outstanding loans.
Step 7: ROC Approval and Certificate Issuance
Upon review and approval of the application, the ROC issues a certificate in Form MSC-2, officially changing the company's status to dormant.
Documentation Required:
1) Board resolution authorizing the conversion.
2) Special resolution passed at the EGM.
3) Latest financial statements and annual returns.
4) Statement of affairs certified by a CA or Auditor.
5) Consent from creditors, if applicable.
Ongoing Compliance for Dormant Companies:
Even though the compliance requirements are reduced, a dormant company must still:
1) Maintain a minimum number of directors.
2) Hold at least one board meeting every six months.
3) Keep a registered office address.
4) File annual returns and maintain financial statements.
Dormant companies also need to ensure they manage any minor transactions allowed under their dormant status, like paying statutory fees or maintaining their registration details.
By converting to a dormant status, companies can significantly reduce administrative burdens while preserving their corporate entity for future opportunities. This option is a strategic choice for companies planning a hiatus in their commercial activities or those holding assets for future use.