The Advent of Inactive Companies- Dormant Companies
Introduction
Dormant companies are those companies who have not conducted any business activity in the previous two financial years or have not completed any significant accounting activities, or have not maintained accounting information and annual returns in the previous two financial years.
The main goal of the amendments to the Companies Act 1956 was to create a better law that would be able to address changes in the public and global situation, enable the acceptance of internationally recognized prescribed procedures, and provide adaptability due to constantly changing plans of action. The idea of Dormant Companies, which was offered in Section 455 of the Companies Act of 2013, had a similar approach.
Inactive Company/ Dormant Company
The term “inactive company” refers to a firm that has not engaged on any business or activity, has not performed any substantial financial transactions, or has not completed financial statements and annual returns in the previous two financial years.
In the same way “dormant” means “inactive” or “inoperative” in speech. A dormant company is a fantastic opportunity to start a firm for a future task or to own a resource/intellectual property without having to start from scratch.
The Registrar pays company fees; it makes payments for the purposes of this Act or any other law; it allocates shares to meet the Act’s obligations; and it pays fees for the upkeep of its office and records.
Alternatively, if a corporation has not documented its annual returns for two years in a row, it is considered dormant.
Huge financial transactions would include transactions other than the basic procedural exchanges, such as a company’s instalment of expenses to the Registrar, as well as instalments to meet the requirements of this Act or another law, distribution of offers to meet the requirements of this Act, and instalments for the support of its office and records.
Advantages of Dormant Company
The benefits derived from the situation can be summed up under the following topics –
Firm Name Protection
A dormant company’s intellectual property includes a brand name of the company name. The company name is protected in order to prevent others from trading under the name of the defunct corporation.
Future Project
A business could be shaped to prepare for a future project. This denotes the advertisers’ intention to trade and, as a result, preserve the space name.
Firm’s Timeline
While not the most important benefit, by establishing a company that began and later launched a business, it can be said to have been grounded since its inception, even if it went into business later. It helps the organization present a better image to potential clients and/or loan specialists.
Attaining the Status of Dormant Company
For a company to attain the status of a Dormant Company, the following prerequisites must be satisfied:
- No investigations or inspections have been ordered/taken/performed for the company.
- No legal proceedings have been instituted against the company under any law.
- The Company does not have any arrears of public funds and does not pay taxes on it and its interest.
- The Company does not have outstanding loans whether they are secured or unsecured.
If any outstanding loan exists, the company may apply after obtaining the lender’s approval and filing the same on the MSC-1 form. - There is no dispute in the management/administration of the company and a certificate in this regard is attached to the MSC-1 form.
- The Company does not have any official fees, taxes, duties, or other charges payable to any CG or SG or local authorities, etc.
- The company did not fail to pay employees’ salaries.
- The security of any company is not registered on any stock exchange within or outside.
Conclusion
Section 455 of the Companies Act, 2013 describes Dormant Company as an inactive enterprise that no longer leads any business operations or no longer undertakes any significant financial transactions for the last two financial years. Such businesses might get register with the Registrar as a dormant company.