Granting the “Dormant Status”
This option is suitable when you have registered a company for a future project and hence the company is not operational currently. Also, where an in-operational company cannot be closed as it might be holding assets such as land, building etc. choosing the “dormant status” is a good option.
Let’s understand what’s a Dormant company?
A dormant company is a company which is inactive i.e. a company which has the following characteristics:
- It has not been carrying on any business or operation
- It has not made any significant accounting transaction during the last two financial years.
- It has not filed financial statements and annual returns during the last two financial years.
- A defaulting Company which has not filed annual returns and financial statements for two years or more.
Procedure for obtaining status of dormant company:
- An application must be made in form MSC-1 to get the “Dormant” status.
- A special resolution should be passed to authorize the directors to make application for Dormant status. Thus, we need to file E-form MGT-14 with ROC for filing special resolution.
- The Registrar shall, after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2 allowing the status of a Dormant Company.
Advantages of applying for ‘Dormant Status’
There is lesser compliance burden for a dormant company which reduces the costs of maintaining such a company.
‘Dormant Companies’ are exempted from the following compliances:
- To include cash flow statements in their financial statements.
- Reduced compliance for holding board meeting in each quarter. These companies are required to hold only two board meetings during the year.
- These companies do not require to rotate the auditors
Compliances to be met by a dormant company:
- It shall file a “Return of Dormant Company” each year, indicating financial position which should be audited by a chartered accountant in practice in
- Form MSC-3 along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year.
Also, note that maximum tenure for which a company can remain dormant is 5 consecutive financial years.
If a company remains dormant for more than 5 years, the Registrar commences the process of striking off the name of the company from the Records, i.e. the company will be removed.
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TAXAJ Corporate Services LLP
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