Dormant Company Under Section 455 of Companies Act, 2013

A company that has ceased carrying out its business activities but does not want to dissolve is a dormant company. Companies that exist for a namesake and do not have intentions to trade can keep the company as a “dormant company.”  

Meaning of dormant company

A dormant company is registered with the public but is viewed as inactive by Company’s House. 

It is considered dormant if the company has no business activities, income, and expenses. No significant transactions should have taken place in the accounting period. The company will not be levied corporation tax as there is no taxable profit. The company will need to prepare a return even if nothing is payable. The Director of the company should prepare and file annual returns. 

There are different reasons to justify the existence of a dormant company. The decision solely depends on the grounds and requirements. 

Advantages of dormant company

Restarting a company is preferable to a brand-new start-up. Only dormant companies can offer such a privilege. The company can be established first, and the business activities can be worked on later. Dormant companies may be inactive, but they are official and established under the operations of the law and is authentic. A few of the benefits of a dormant company are as follows:

• Authenticity and protection for the company’s name.
• A stepping stone for future projects.
• Aids in holding fixed assets and intellectual properties. 
• Compliance is comparatively less than a company closure or the strike-off process.
• A dormant company can be easily reactivated and upgraded to active status.
• A dormant company needs to wait to pay taxes until its reactivation.
• Re-spending on the Incorporation cost is not needed.

Reasons to get dormant status

A company can be turned dormant for myriad reasons, that includes

• When an owner wants to launch a company and officially preserve its name, he can register it as a dormant company.
• In case of restructuring, the owner can apply for Dormant status.
• A long-term recess in case of reasons such as illness, travel, maternity leave, sabbatical, etc., The company can take on the dormant status

Requirements to declare as a dormant company

Documents are required to change the company’s status from active to dormant. 

• An official copy of the particular order confirming the attainment of lodging should be submitted to the worker on the MGT-14 form.
• An official copy of the board’s decision stating the commencement of the work should be provided.
• Certificate of evidence to state that there is no dispute between ownership or management.
• A Certificate from the auditor
• NOC, from the foremost authority which handles the company, is mandatory.
• Approved statements of the news should be by company auditors or CA.
• Lender’s consent for any pending loan amount.
• The company’s latest financial and annual return records should be attached.

Procedure for declaring a company dormant

A dormant company enjoys a lot of privileges. But before converting the status to dormant, a company has to undertake the following steps listed below:

• The first step in changing a business’s active status to inactive or registering a corporation as defunct is to get in touch with HMRC’s Corporation Tax Office. An application should be submitted stating the date from which the company should be proclaimed dormant. 
• The contact details of a Corporation Tax Office can be gained from any official letter from HMRC delivered to your Registered Office. You can also reach out to your nearest Tax Office.
• Within 15 days, an acceptance notice will be sent to your registered office.
• The HMRC will send a ‘Notice to deliver a Company Tax Return’ if the company has made any previous trade. The same has to be sent to HMRC online before registering your company dormant. Pay outstanding Corporation Tax, if any, and ensure to close your payroll and cancel VAT (if applicable).
• Before changing the company’s active status, ensure all outstanding bills have been paid, and the accounts are settled. 
• After completing all the above procedures, you can contact HMRC again once your company restarts trading.
• Direct notification to the company’s house is optional after the company becomes dormant. Dormant accounts and confirmation statements should be filed every year. This way, the company’s inactive status will remain informed to the company’s house.

Do not open a new bank account for the company when it is dormant. The company’s dormant status will be forfeited if there are any remaining unclosed transactions. Unnecessary charges will be imposed, and unexpected payments must be made if the issue still needs to be resolved.

Reactivation of dormant company

• To restart the company and gain active status, you must prepare an Application to attain the active position in Form MSC-4 and submit the fees prescribed under the Companies (Registration Offices and Fees) Rules, 2014. 
• The registrar may initiate to strike off the company’s name if it has remained dormant for five consecutive years.
• After filing and assessing the application, the registrar will issue a Certificate in Form MSC-5 confirming the active status of your company.

In the case of a Dormant Company acting as an Active Company, follow these steps:

• If the dormant company is doing anything mentioned in the Application Form MSC-1, the Directors should apply to obtain an active status within seven days under which that act was committed.
• After verification, the ROC shall issue a Certificate in Form MSC-5 and grant active status to the company.
• If the registrar finds the functioning of a dormant company post inquiry, strict actions will be taken. Then ROC may provide a reasonable opportunity to be heard and further initiate proceedings against the Dormant Company under Section 206 of the Companies Act 2013.

Conclusion

The option to change the status of a company from active to dormant and vice versa is an innovative aspect that allows proprietors to take breaks from the business. It provides the privilege of commencing a future project or holding a company’s intellectual property and assets without making any significant transactions.