Dormant Company - Reactivation, Procedure, and other details

As the name suggests, Dormant Companies are companies that remain inactive. The Companies Act 2013 provides for the existence of such companies. The directors of companies that fall under the umbrella of dormancy may apply for the designation of a Dormant or Inactive company. In order to receive the benefits of the dormant company, the directors are required to follow a simplified procedure.

What is a dormant company?

A dormant company, as introduced through “Dormant company” Section 455 of the companies Act, 2013, refers to a company that does not engage in transactions that are of significant financial nature and are instead restricted to holding intellectual property or future projects or assets that might exist in the future. In simple words, such companies do not engage in purchases, sales, and exchange of services in return for finances. It is essential to note that financial transactions related to procedural compliances such as registration are not enough to make the company active. Moreover, in the event of non-filing of essential financial returns of a company for a period of or beyond two years consecutively, a company may become dormant. 

Dormant Company Features:

There are certain features that a dormant company has, on the basis of which it becomes eligible for registration. These dormant company features are:

• The company must not have previously undergone investigations, inspections, or inquiries.
• The company must not have any pending litigation or prosecution against the company.
• There must not be unpaid public deposits or any outstanding interest thereof under the name of the company. 
• If the company has any outstanding loans, it may not achieve the status of a dormant company unless they undergo the distinct process of getting the lender’s approval.
• The company does not have any disputes about its ownership, as it needs to be formally attested by its owners and key managerial persons. 
• The company cannot be listed on any national or international stock exchange.
• The company does not have any pending dues or conflicts about payment to its employees and workers.
• The company must not have any outstanding tax or statutory or regulatory payments or defaults.

Benefits of Dormant Company:

A dormant company may offer benefits such as:

• The company reduces the need for compliances that need to be fulfilled under the existing law.
• The company may be used to hold and preserve assets that are long-term or fixed in nature, such as building, land, or machinery. 
• The company may be used to hold intellectual property ownerships. 
• The company may be used for the protection of goodwill.
• The company may be used to enter into future projects. 

Procedure for Achieving a Dormant Status:

A company can receive the status of a dormant company after undergoing the following procedural formalities:

• The company has to file a form entitled Form MSC-1. Such a form can only be filed with the consent of ¾ of the company's total shareholders, proportional to their stake in said company. Such consent may be taken by conducting a special resolution or issuing a notice to shareholders and getting their consent thereon.
• The Registrar of Companies carries out the necessary due diligence before issuing the certificate of a Dormant Company through Form MSC-2.
• The Register of Dormant Companies, which contains all the existing dormant company names, is maintained by the Registrar and is available at www.mca.gov.in. 
• Further, suppose the Registrar is of the opinion that a company that has applied for the dormant position does not fulfill the requirements. In that case, they may designate it as an active company.

The procedure of Reactivation of a Dormant Company:

In several cases, once a dormant company is anticipated to start functioning again, they need to be reactivated. Additionally, if a company starts functioning beyond the activities of a dormant company or no longer meets the eligibility criteria. In that case, the directors are mandated to apply for reactivation within 7 days of the commencement of such acts. In order to make a dormant company active again, the applicant shall have to undertake the following steps:

• They shall need to file forms MSC-3 and MSC-4
• They shall have to pay the prescribed fee for reactivation.
• Once approved, they shall be issued a certificate under form MSC-5 by the Registrar of Companies.