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Best Practices for Dormant Company Registration in India
Under the Companies Act of 2013, a Dormant Company is a registered entity that is not currently involved in any significant operational or financial activity. This status is especially useful for businesses that are formed with a long-term vision but are not yet ready to commence active trading. It can also serve to protect intellectual property or hold assets without engaging in any commercial transactions. The concept of dormant status allows such companies to minimize their compliance obligations while still maintaining legal recognition and the right to operate in the future.
If your business is temporarily inactive or is in the preparatory stages for future projects, converting to dormant status can help reduce unnecessary compliance costs. India Company Setup offers professional assistance in facilitating a smooth transition to dormant status. Our experienced team ensures your filing is accurate, timely, and fully compliant with the applicable legal provisions. Let us help you simplify your corporate compliance journey—reach out to India Company Setup today.
What is a Dormant Company?
A Dormant Company, sometimes referred to as a Dormant Entity or Inactive Company, is one that is officially registered under the Companies Act but is not actively involved in carrying out business transactions or generating revenue through regular operations. In many cases, companies that are formed for future expansion, holding intellectual property (IP) assets, or keeping the business name reserved for later use choose to adopt dormant status.
Common scenarios under which a business might seek dormant status include:
• Being incorporated with a long-term plan for a future project or business idea that has not yet materialized.
• Acting as a holding company to own or manage intellectual property, such as trademarks or patents, without trading activities.
• Not conducting any significant accounting transactions in a particular financial year.
• Ceasing operations for strategic or temporary personal reasons, such as restructuring or extended travel of directors.
It’s also important to remember that while the dormant status provides relief from regular statutory requirements, it is not a permanent designation. Companies must either resume active status or apply for an extension if they wish to remain dormant beyond the allowable period.
Legal Framework for Dormant Companies Under the Companies Act, 2013
The provision for dormant companies is outlined in Section 455 of the Companies Act, 2013. It allows an inactive company or a company not engaged in any significant financial transactions to apply for dormant status with the Registrar of Companies (ROC). This facilitates reduced compliance and reporting requirements while the company remains legally registered.
Definition of “Inactive Company”
According to the Companies Act, an “Inactive Company” is one that:
• Has not conducted any business or financial transaction in the last two consecutive financial years
• Has not filed financial statements or annual returns for the same period
Inactive companies are eligible to apply for dormant status provided they fulfill all the prescribed conditions set out in the Companies (Miscellaneous) Rules, 2014.
What are "Significant Accounting Transactions"?
Not all financial transactions are considered significant when assessing dormant eligibility. The following do not qualify as significant transactions under the Companies Act:
Payments made to fulfill legal obligations under the Companies Act, 2013.
Fees paid to the Registrar of Companies (ROC).
Transactions related to the allotment of shares.
Expenses for maintaining the registered office or other administrative functions.
These limited activities are permissible while the company is dormant.
Key Reasons to Apply for Dormant Company Status
Businesses opt for dormant status for several strategic and practical reasons:
1. Preservation of Business Name: Registering a company and keeping it dormant helps secure the company name for future business plans. This prevents others from using a similar or identical name.
2. Long-Term Planning: Some companies are formed well in advance of their actual launch or market entry. Dormant status allows such businesses to stay compliant without incurring unnecessary costs.
3. Business Restructuring: During phases of business transition or reorganization, dormant status offers a legal way to retain the company’s existence without engaging in commercial activity.
4. Holding Assets or Intellectual Property: Businesses might use a dormant company as a vehicle to hold assets or IP rights, without generating direct income.
5. Temporary Inactivity Due to Personal Reasons: Directors or shareholders may take a sabbatical, travel, go on maternity leave, or attend to personal matters. In such cases, pausing business activities and declaring dormant status ensures legal compliance with reduced obligations.
6. Cost-Effective Maintenance: Dormant companies are subject to fewer compliance requirements, which reduces costs related to audits, filings, and other administrative duties.
Advantages of Registering as a Dormant Company
Opting for dormant status offers several benefits for businesses not currently operational:
✦ Protection of Legal Identity: The company remains legally registered and retains its identity in the eyes of the law.
✦ Safeguarding the Business Name: Dormant status prevents others from registering a similar or identical name, offering brand protection.
✦ Reduction in Compliance Costs: Fewer mandatory filings and no obligation for auditor rotation significantly reduce overall compliance expenses.
✦ Legal Flexibility: The company can return to active status at any time without the need to re-register.
✦ Fewer Board Meetings Required: Only two board meetings are mandated annually for dormant companies, in contrast to quarterly meetings for active companies.
✦ Simpler Return Filings: Annual return filing is streamlined with the use of Form MSC-3.
✦ Exemption from Auditor Rotation: Unlike active companies, dormant companies are not required to periodically rotate auditors.
Prerequisites for Obtaining Dormant Status
As per Section 455(5) of the Companies Act and Rule 6 of the Companies (Miscellaneous) Rules, 2014, certain eligibility criteria and procedural requirements must be satisfied:
Minimum Number of Directors
• Private Company: Minimum 2 directors.
• Public Company: Minimum 3 directors.
• One Person Company (OPC): Minimum 1 director.
Shareholder Consent
The company must pass a special resolution in a general meeting. Alternatively, written consent must be obtained from at least three-fourths of shareholders in terms of value. This consent should be properly recorded and documented.
Application Conditions
Before applying for dormant status, ensure the following:
• There are no pending investigations, inquiries, or inspections against the company.
• There is no ongoing prosecution under any law.
• The company does not have any unpaid public deposits or interest thereon.
• All outstanding loans (if any) are settled or a no-objection certificate is obtained from the lender.
• No disputes exist regarding management or ownership, and this must be confirmed with a certificate.
• All government dues such as taxes, levies, and penalties are cleared.
• The company is not listed on any Indian or foreign stock exchange.
Note: In cases where unsecured loans are outstanding, the company can still apply for dormant status by providing the lender’s consent letter along with the application form (MSC-1).
Step-by-Step Process for Filing Dormant Status
To convert an active company into a dormant company, the following steps must be completed under the Companies Act of 2013:
Step 1: Board Resolution
Hold a Board Meeting and pass a resolution to initiate the process of converting the company into a dormant one. Appoint one director to oversee the application and compliance process and to communicate with stakeholders.
Step 2: Issue of EGM Notice
Send out a formal notice for convening an Extraordinary General Meeting (EGM), including a detailed explanatory statement outlining the rationale for seeking dormant status.
Step 3: Certification of Statement of Affairs
The company’s Statement of Affairs must be verified and certified by a practicing Chartered Accountant or the Statutory Auditor. This document summarizes the company’s current financial status.
Step 4: Conduct EGM and Pass Special Resolution
Convene the EGM as per legal requirements outlined in Sections 96 and 100 of the Companies Act and Secretarial Standard-2 (SS-2). Pass a special resolution authorizing the application for dormant status.
Step 5: Filing of Form MGT-14
File Form MGT-14 with the ROC within 30 days of passing the special resolution. Attach the certified copy of the board resolution, the explanatory statement, and the EGM notice.
Step 6: Filing of Form MSC-1
Submit Form MSC-1 along with the prescribed fee to the ROC. Attachments include:
• Certified board and special resolutions.
• Statement of Affairs and Auditor’s certificate.
• Latest financial statements and annual returns (if applicable).
• NOC from regulators (if required).
• Consent from lenders (if loans are outstanding).
Step 7: Grant of Dormant Status by ROC
If all conditions are satisfied and the documentation is in order, the ROC will issue a Certificate of Dormant Status in Form MSC-2, officially granting dormant recognition.
Forms Required for Dormant Company Registration
S.No | Form Name | Description |
1 | Form MGT-14 | Filed with the ROC to report the passing of a special resolution. Must be submitted within 30 days of the EGM. |
2 | Form MSC-1 | Official application for converting an active company to dormant. Includes all supporting documents and applicable fees. |
Ongoing Compliance Requirements for Dormant Companies
Contrary to popular belief, dormant companies are not entirely exempt from compliance responsibilities. While reduced, they are still required to meet key legal obligations across four categories:
1. Accounting and Financial Records
Despite inactivity, dormant companies must maintain proper accounting records, hold bi-annual board meetings, and keep their registered office functional.
2. Statutory Audit
Dormant companies are still required to undergo a statutory audit annually. A Chartered Accountant must review and verify the company’s books of accounts.
3. Tax Compliance
Dormant companies must continue filing tax returns, including:
• Income Tax Returns (ITRs)
• TDS returns (if applicable)
• GST returns (if the company is registered under GST)
4. ROC Filings
• Annual Return: Must be filed using Form MSC-3 within 30 days of the financial year-end.
• Include a certified board resolution, audited financials, and applicable fees.
• Other filings: Any changes in directorship or shareholding must still be reported.
Maintain Dormant Status with Ease – Partner with India Company Setup
India Company Setup offers specialized services to help businesses file for and maintain Dormant Company status with minimal hassle. Our legal and accounting experts handle the entire process—from document preparation and regulatory filings to annual compliance support.
Whether you’re pausing operations temporarily or preparing for future ventures, we ensure your business remains legally compliant, cost-efficient, and ready to reactivate when needed. Contact India Company Setup today to learn more about how we can assist you in navigating dormant company registration and compliance in India.
What We Offer
At India Company Setup, we deliver a complete suite of business services to help you start, grow, and manage your company with ease. From registration to regulatory compliance, our expert support ensures your business stays legally sound and financially organized.
Daily & Monthly Bookkeeping
- Record all financial transactions.
- Maintain audit-ready books in sync with GST and Income Tax laws
- Stay prepared for MCA and statutory filings
Financial Reporting
- Preparation of Profit & Loss Statements and Balance Sheets
- Generate detailed balance sheets.
- Deliver cash flow statements.
Reconciliation Services
- Bank and credit card reconciliations.
- Ensure accuracy of all financial data.
- Maintain accuracy for timely Income Tax and MCA submissions
Secure Digital Bookkeeping
- Utilize encrypted software for data security.
- Anytime, anywhere access to your business data
- Aligned with India's data protection and compliance standards
Benefits of Our Bookkeeping Services
1. Accurate Financial Records
Our expert bookkeeping ensures every transaction is correctly recorded, reducing compliance errors and giving you a clear picture of your company’s financial health — crucial for GST, Income Tax, and MCA filings.
2. Time-Saving
Focus on growing your business while we manage your books. By outsourcing to us, you eliminate the burden of paperwork, reconciliations, and regulatory upkeep — saving you both time and effort.
3. Better Cash Flow Management
We help you monitor income and expenses in real time, so you maintain a healthy cash position, make informed decisions, and avoid last-minute cash crunches or missed tax deadlines.
A Dormant Company is a company that is not carrying out any significant business activity or operations for a certain period but is still legally registered. It is kept in an inactive status to avoid compliance burden while retaining the company’s legal identity.
Applying for dormant status helps:
Reduce regulatory and compliance requirements
Avoid financial and operational obligations like audits and extensive filings
Keep the company alive legally for future use or investment
Save costs during inactivity
Pass a Board Resolution approving the dormant status application
File Form MSC-1 with the Registrar of Companies (ROC) stating the reason for dormancy
The ROC reviews and grants dormant status if the company meets eligibility criteria
The company must not have conducted any business activity or received income during the preceding financial year
Even as dormant, the company must:
File annual returns and financial statements with the ROC (simplified)
Maintain statutory records and registers
Inform the ROC if it resumes business activity
Comply with basic governance rules under the Companies Act
Yes, a dormant company can reactivate by passing a board resolution and filing an application with the ROC to cancel the dormant status. It must then comply with regular company filings and taxation as applicable.
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