How to Apply for Dormant Company Status in India: A Complete Guide

Introduction

Starting a business is an exciting journey, but not all companies operate continuously. Sometimes, businesses face unforeseen challenges, market fluctuations, or strategic shifts that require them to put operations on hold without shutting down entirely. In such cases, obtaining dormant company status is a smart legal option for business owners in India. It allows them to keep their company registered while reducing compliance burdens, ensuring they can easily resume operations when the time is right.

A dormant company is essentially an entity that is legally registered but remains inactive. The Companies Act, 2013 provides provisions for inactive company registration, which enables businesses to maintain their corporate identity without the hassle of regular compliance. This status is particularly beneficial for companies that are in the early stages of planning, holding intellectual property or assets, or temporarily suspending their business activities.

To obtain ROC dormant status, businesses must follow a structured application process with the Registrar of Companies (ROC). This process includes submitting specific forms and declarations to ensure compliance with regulatory requirements. While dormant status reduces the operational load, certain obligations still apply. Compliance for dormant firms includes limited but mandatory reporting, ensuring that the company remains in good standing with regulatory authorities.

One of the key aspects business owners must keep in mind is annual filings for dormant companies. Even though a company is inactive, it must file minimal returns with the ROC to retain its dormant status. Failure to comply with these filings may result in penalties or even removal from the company register.

When the time comes to reactivate the business, understanding the process of reviving dormant companies is crucial. Companies can easily transition back to active status by following the necessary legal procedures, updating financial records, and resuming compliance with standard corporate regulations.

This article will serve as a comprehensive guide to dormant company status in India, covering everything from inactive company registration and obtaining ROC dormant status to meeting compliance for dormant firms, fulfilling annual filings for dormant companies, and the step-by-step process of reviving dormant companies. Whether you’re pausing operations for strategic reasons or safeguarding your business for future opportunities, understanding these aspects will help you make informed decisions and maintain your company’s legal standing effortlessly.

Also Read: Steps To Take Post Company Registration Steps | RegisterKaro

What is a Dormant Company?

In India, a dormant company is a registered entity that has ceased carrying out its operational activities or has never commenced them but wishes to retain its corporate existence. Think of it as your company’s version of hitting the snooze button—it’s inactive but not defunct.

According to Section 455 of the Companies Act, 2013, businesses can apply for this status when they don’t have significant accounting transactions. These transactions include paying employee wages, filing taxes, or distributing dividends—essentially, the core financial activities that signify an active company.

Whether your business is taking a breather to reorganize or waiting for the right market conditions to start, applying for this status helps keep the business afloat without the weight of full-scale compliance.

What Is The Eligibility Criteria for Dormant Company Status

To apply for this company’s status in India, your business must meet specific eligibility criteria. This ensures that only companies genuinely inactive can be classified as dormant. The key eligibility points are:

1. No Significant Transactions: If your company has had no significant financial activities over the last two years, it can apply for dormant status. This includes no payments related to transactions such as employee salaries or taxes.
   
2. No Ongoing Investigation or Legal Proceedings: The company must not be involved in any active investigation, legal dispute, or ongoing inspection under any law in India.
   
3. No Secured Loan: The company should not have any secured loans. If there is a loan, the lender’s approval must be obtained before applying for dormant status.
   
4. Not a Listed Company: Listed companies are not eligible for this status under current regulations.
   

What is the Procedure to Apply for Dormant Company Status

If your company qualifies, here’s a step-by-step guide to applying for this status in India:

1. Board Resolution: A resolution must be passed by the company’s board of directors to apply for dormant status.
   
2. File Form MSC-1: This is the official form used to request the status. It must be submitted to the Registrar of Companies (ROC) along with the necessary fee and supporting documents, including a statement of affairs verified by an auditor.
   
3. Issue of Certificate by ROC: Upon verification, the ROC will issue a Certificate of Dormant Company, officially confirming the status.
   

What are the Compliance Requirements for Dormant Companies

Even though this company is inactive, it doesn’t mean there’s zero compliance. The company must still follow a simplified set of rules, which include:

1. Annual Filing of Financial Statements: Dormant companies must file their financial statements annually with the ROC, even if they haven’t conducted business. The good news? These filings are significantly simplified compared to active companies.
   
2. Form MSC-3: This is the annual return for dormant companies and must be filed every year within 30 days from the end of the financial year.
   
3. Minimum Directors: Dormant companies must maintain at least one director in the case of a One-person company (OPC) and two for other companies.
   

What Are the Advantages and Disadvantages of Dormant Company Status

Choosing to make your company dormant comes with its own set of pros and cons.

Advantages:

• Reduced Compliance Burden: Dormant companies enjoy a streamlined compliance process, relieving business owners of many typical reporting duties.
• Legal Protection: Your company name and legal standing are protected, preventing anyone else from registering under the same name while you remain inactive.
• No Penalties for Non-Compliance: Since the compliance requirements are minimal, there’s less risk of incurring penalties for missed filings or non-compliance.

Disadvantages:

• Restrictions on Operations: As a dormant organization, you cannot carry out any financial or operational activities without revoking the status.
• Basic Compliance Still Required: While reduced, there are still annual filings and director requirements to maintain.

What is the Process to Reactivate a Dormant Company

Just as easily as a organization can go dormant, it can also be brought back to life! The process of reviving dormant companies is relatively straightforward:

1. Board Resolution: Similar to the dormancy process, the board of directors must pass a resolution to restore the company to active status.
   
2. File Form MSC-4: This is the application to the ROC for reactivation. Submit this form along with the relevant fee and any additional documentation.
   
3. Compliance Restored: Once the ROC verifies the documents, it will issue an order to reactivate the company, at which point all active compliance requirements resume.
   

Conclusion

In conclusion, dormant organization status offers a great way to keep your business legally intact while minimizing compliance efforts when you’re not actively trading. Whether you’re restructuring, waiting for the right market conditions, or pausing for strategic reasons, it’s an excellent option. However, remember that going dormant doesn’t completely absolve you of compliance duties, and reactivation is always an option when the time is right.

At RegisterKaro, we specialize in helping businesses navigate all aspects of their lifecycle, from incorporation to dormancy and beyond. Contact us today at support@registerkaro.in for seamless dormant company registration, compliance, and reactivation support. 

Frequently Asked Questions (FAQs)

1. What is meant by a dormant company?
Dormant companies are registered businesses that are not actively carrying out financial transactions or operations but remain legally incorporated. Under Section 455 of the Companies Act, 2013, organization that have been inactive for two consecutive years can apply for dormant status with the Registrar of Companies (ROC) to reduce compliance obligations while maintaining their legal standing.

2. What is a dormant account in a company?
A dormant account in a company refers to a bank account that has had no significant transactions for a prolonged period. Banks may classify such accounts as inactive or dormant if no withdrawals, deposits, or financial activity occur within a specific timeframe, usually 12 to 24 months. Organization must ensure periodic transactions to avoid their accounts being flagged as dormant.

3. Can a dormant company become active?
Yes, dormant Organization can become active again by filing Form MSC-4 with the ROC. The company must:

• Pass a board resolution to restore active status.
• Submit required compliance documents and financial statements.
• Resume business operations after receiving approval from the ROC.

Once reactivated, the company must comply with all legal and financial requirements applicable to an active business.

4. What happens to a dormant company?
A dormant company:

• Remains legally registered but does not conduct business activities.
• Has reduced compliance requirements, such as simplified financial filings.
• Can retain its corporate identity and prevent its name from being taken by another entity.
• Must still file Form MSC-3 (Annual Return) every year to maintain its dormant status.
  If dormant organization fail to comply, the ROC may strike off its name from the Organization register.

5. What does 99999 dormant company mean?
The “99999 dormant company” classification is a reference to the National Industrial Classification (NIC) Code used by India’s Ministry of Corporate Affairs (MCA). The code 99999 is assigned to organization that do not engage in any financial activity and have been officially recognized as dormant under the Companies Act, 2013.

6. What is called dormant?
The term “dormant” generally means inactive or in a state of temporary rest. In a corporate context, dormant Organization are businesses that are legally registered but do not conduct any financial transactions or operations. The company remains in existence and can be reactivated in the future.