Dormant Companies under Companies Act, 2013
January 7, 2016
I. Introduction:
There are around 1.5 lakh dormant companies presently in India as per the government data some of which are either incorporated for future projects or to hold asset or Intellectual Property Rights. Some are yet to commence operations while some have been non operational for a long period of time. However, dormant companies do not necessarily mean that they are defunct.
A dormant company provides an excellent advantage to promoters who want to hold an intellectual property or an asset under the corporate shield for its usage at a later stage. For instance, if a promoter wants to buy a property now for the purpose of some future project at a comparatively affordable price, he can purchase the property through a dormant company so that he uses the property for the project later on. A dormant company can also prove useful when an individual wishes to stop trading for a specific period of time. For example, if an individual has been running a successful company but wishes to move abroad for a short time, he can choose to preserve his company so that he can restart it at a later date. Since a dormant company remains in the books of registrar for a considerable time it provides the company with a sense of maturity and might help to boost its credit worthiness. Dormant companies or asset holding companies also help in limiting the liabilities of the holding company and protect the assets of the group company from the operation of other subsidiary company. In case one of the subsidiaries goes bankrupt, unless the holding company has co-signed the debt, the holding company will not be liable for the loss.
II. Recognisition of Dormant Company:
Under the Companies Act, 1956 a company which does not submit its Annual Filings for three consecutive years would be declared as dormant company. However, there was no specific provision under the old Companies Act, which allowed for registration as a dormant company, i.e. companies which were established for a certain purpose (which did not have any significant transactions) to comply with all the compliances required for a normal company. The typical compliance of a company added to the cost and time for the officer of such companies, and acted as deterrence for incorporating such companies, which are incorporated for a very specific purpose of holding intellectual property, assets of the company as a strategy.
III. Which Companies can obtain the status of a Dormant Company:
Companies Act, 2013 has come up with new regulations for dormant companies. Section 455 of Companies Act, 2013 deals with companies which are dormant in nature. It provides certain conditions to be fulfilled before getting a tag of dormant company. Companies may apply for a dormant status if the company is incorporated for a future project, incorporated for holding an asset or intellectual property, company which has not filed Financial Statement and Annual Returns during the last two financial years and the company which is not carrying out any business or has made any significant accounting transactions. An application has to be made to the registrar of companies to get a dormant company certificate.
IV. Important Conditions to be fulfilled for acquiring Dormant Company Status:
Apart from the above criteria, a company can acquire the status of a dormant company, only if it has fulfilled the following conditions:
- The company is neither having any public deposits which are outstanding nor is the company in default in payment thereof or interest thereon;
- No inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
- No prosecution has been initiated or pending against the company under any law;
- The company is not having any outstanding loan or if there is any, the concurrence of the lender has been obtained and is enclosed with the application;
- The company has not defaulted in the payment of workmen’s dues;
- The company does not have any outstanding statutory taxes, dues, duties etc, payable to the Central Government or any State Government or local authorities etc.;
- There is no dispute in the management or ownership of the company;
- The application has not been made with an objective to deceive the creditors or to defraud any other person;
- The securities of the company are not listed on any stock exchange within or outside India.
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