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What is Dormant Company?

What is Dormant Company?

As per under Section 455 of the Companies Act, 2013. A dormant company refers to a business that is registered with the relevant government authorities but is not actively trading or generating income. Dormant status is often chosen by businesses that are not currently operational but might become active in the future. These companies might be in a planning phase, undergoing restructuring, or simply waiting for the right market conditions to start trading.

Dormant company still have certain legal obligations, such as filing annual financial statements and maintaining their registered office address. However, they are exempt from filing detailed financial reports if they meet specific criteria outlined by the regulatory authorities. This status allows businesses to keep their legal entity without incurring the same level of administrative responsibilities and costs associated with active trading companies.

Requirements of Dormant Company

The specific requirements for a company to be declared as dormant jurisdiction. However, there are common criteria that are typically applicable. Here are some general requirements to be declared as a dormant company in many jurisdictions:

  • No Trading Activity: The company must not be engaged in any trading activity. This means it is not buying or selling goods or services for financial gain. Even minimal trading activity could disqualify the company from being considered dormant.
  • No Significant Transactions: The company should not have undertaken any significant financial transactions during a specific period, such as loans, sales, purchases, or other types of financial activities that are considered substantial.
  • No Revenue or Income: A dormant company should not have earned any income or revenue during the period it is considered dormant.
  • No Accounting Transactions: There should be no accounting transactions in the company’s financial records, except for those necessary for compliance, such as payment of the annual fee to the registrar, maintaining a registered office, or paying filing fees for statutory documents.
  • Exempt from Audit: Dormant companies are often exempt from audit requirements. This means they are not required to undergo a mandatory audit of their financial statements. However, this exemption varies by jurisdiction, and it’s essential to check the local regulations.
  • Compliance with Filing Obligations: Although dormant, the company is usually required to file certain documents, such as an annual return or confirmation statement, with the regulatory authorities. These filings ensure that the company’s information is up-to-date.
  • Notification to Regulatory Authorities: In some jurisdictions, the company might be required to formally notify the regulatory authorities of its dormant status. This is often done by filing a specific form or notification letter.

Procedure of Dormant Company

The process of declaring a company as dormant involves specific steps and compliance with legal regulations. While the exact procedure can vary depending on the jurisdiction, the general steps to be declared as a dormant company typically include the following:

  • Board Resolution: The board of directors of the company must pass a resolution to declare the company as dormant. This resolution should outline the reasons for the company’s dormancy and authorize the filing of an application for dormant status.
  • Financial Statements: Ensure that all financial statements and statutory filings are up-to-date. This might include filing pending annual returns and financial statements with the relevant regulatory authorities.
  • Application to Regulatory Authority: Prepare and submit an application to the appropriate regulatory authority (such as Companies House in the UK or the Registrar of Companies in India) for declaring the company as dormant. The application form and required documents can vary by jurisdiction but typically include the board resolution, financial statements, and a statement declaring the company’s dormancy.
  • Payment of Fees: Pay any applicable fees for filing the application. The fees can vary and depend on the jurisdiction.
  • Confirmation of Dormant Status: Once the regulatory authority reviews the application and supporting documents and is satisfied with the company’s eligibility, they will issue a certificate or confirmation of the company’s dormant status. This certificate confirms that the company is officially recognized as dormant.
  • Ongoing Compliance: Even as a dormant company, there are usually ongoing compliance requirements, such as filing annual returns, updating the registered office address, and paying the annual fee to maintain the company’s legal status.
  • Legal and Professional Advice: It’s advisable to seek legal and professional advice from a qualified company secretary or legal expert who is familiar with the regulations of the jurisdiction where the company is registered. They can guide you through the specific requirements and help ensure that all necessary steps are taken.

Dormant company bank accounts

A dormant company bank account refers to a business bank account that is inactive and not used for any financial transactions over an extended period of time. The specific criteria for an account to be considered dormant vary by jurisdiction and banking institution. Generally, an account is labeled as dormant when there have been no deposits, withdrawals, or other transactions for a specified period.

Dormant accounts are subject to certain restrictions, which may include limited access, restricted transactions, and additional fees. Banks often classify accounts as dormant to comply with regulations aimed at preventing money laundering and fraud. To reactivate a dormant account, the account holder typically needs to contact the bank, provide updated information, and fulfill any requirements outlined by the bank and relevant authorities.

How to make a dormant company active

Reactivating a dormant company involves several steps and based on the jurisdiction in which your company is registered. Here’s a general guideline to help you reactivate a dormant company:

1. Contact the Bank:

Update Information: Ensure that the company’s contact details with the bank are current. Provide any necessary documentation to prove your identity and authorization to manage the account.

Resolve Outstanding Fees: Clear any outstanding fees or charges associated with the dormant account.

2. Contact the Company Registrar:

Submit Required Documents: Contact the company registrar or the relevant government agency responsible for business registration in your jurisdiction. Submit any necessary documents and pay the required fees to bring your company’s registration up to date.

File Annual Reports: If your jurisdiction requires annual filings or reports, ensure that all necessary paperwork is submitted and up to date.

3. Taxation and Compliance:

Tax Returns: File any pending tax returns and settle any outstanding tax liabilities.

Compliance Check: Ensure your company is compliant with all local rules and regulations, including business licenses and permits.

4. Board Resolution and Shareholders’ Meeting:

Hold a Board Meeting: Convene a board meeting to pass a resolution to reactivate the company. Document this resolution properly.

Shareholders’ Approval: If required by your company’s articles of association, hold a shareholders’ meeting to approve the reactivation process.

5. Legal Assistance:

Consult with a Lawyer: It might be beneficial to consult with a business lawyer who specializes in corporate law in your jurisdiction. They can guide you through the specific legal requirements and paperwork needed for reactivation.

6. Financial Review:

Financial Audit: Consider conducting a financial audit to assess the company’s current financial status and to ensure all records are in order.

7. Business Plan:

Update Business Plan: Review and update your business plan to reflect the company’s current objectives and strategies.

8. Market Re-entry:

Marketing and Sales: Develop a marketing and sales strategy to reintroduce your products or services to the market.

Customer Engagement: Re-engage with past customers and clients.

9. Employee and Vendor Communication:

Notify Employees and Vendors: If you had employees or vendors previously, inform them about the reactivation and any changes that might affect them.

10. Stay Compliant:

Regular Compliance Checks: After reactivation, ensure that you stay compliant with all legal and financial obligations to prevent the company from becoming dormant again.

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CS Deepa Sharma

Author is a associate member of the Institute of Company Secretaries of India (ICSI) and apart from that she holds LLB degree and Master in Commerce degree from Rajasthan University. She is having over 5 years of experience as a Practicing Company Secretary. She is well versed with all the matters related to Company Law and ROC matters, RERA , statutory reporting, Compliance Report and Corporate Governance. She is having good exposure in maintaining secretarial records as prescribed under Companies Act, 2013.

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