Meaning Of Dormant Company

As defined under Section 455 of the Companies Act, 2013, This

Company is “formed and registered under the Act for a future
project/to hold an asset/intellectual property & has no
significant accounting transaction”/”an inactive
company” making an application to the “Registrar in such way
as may be prescribed for getting the status of a dormant
company”.

Significant Accounting Transaction is defined under the

explanation of the same section as:

“any transaction other than-

 Payment of fees by the Company to the Registrar;

 Payment made to it to fulfill the requirements of this
Act/any other law;
 Allotment of shares to comply with the requirements of
this Act &
 Payments for maintenance of its office & records.”

A company that carries out no other transactions except the

ones mentioned above shall be considered a dormant
company. However, a company carrying out any other
transactions other than the ones mentioned above shall lose its
dormant status.

An inactive Company is also defined under the Explanations of

the section. It states that:
“A Company which has not been carrying on any
business/operation/has not made any important accounting
transaction during the past 2 Financial Years/has not filed
financial statement & annual returns during the past 2 financial
years.”

Section 455 of the Companies Act 2013 also empowers the

Registrar to take suo moto action against a company which has
not filed its annual returns or financial statements
consecutively for two fiscal years. The Registrar shall send a
notice to such Company and then enter such Company’s name
in the register of dormant companies. The Registrar is also
empowered under the Act to strike off the name of companies
which do not fulfil the requirements of Section 455 of the
Companies Act, 2013 from the register of dormant companies.
The Registrar is also empowered to strike off the Company’s
name, which has been dormant for the last five consecutive
fiscal years from the register of the Dormant Company.

A company which has been newly incorporated can also be

declared as a dormant company if such a Company has not
conducted any business since its incorporation but has filed
returns with the Registrar of Companies.

There are many benefits which can be derived from a company

(dormant) status. Even though a company is dormant, the
name and trademark of the Company still belong to the
Company and others are barred from using the same. A
dormant company which is formed for a future project shows
the intention of the Company to trade and helps reserve and
retain the domain name.

Registration and Incorporation of a Company

The Companies Act, 2013 details the regulations and company
registration papers essential for the incorporation of a company.
In this article, we will understand all such rules and documents
listed in the Act. To begin with, let’s define the promoters of a
company.

Promoters

Section 2(69) of the Companies Act, 2013, defines promoters as

an individual who:-

 Is named as a promoter in the prospectus or in the annual

returns of the company.
 Controls the affairs of a company, directly or indirectly.
 Advises, directs, or instructs the Board of Directors.
Hence, we can say that promoters are people who originally
come up with the idea of the company, form it and register it.
However, solicitors, accountants, etc. who act in their
professional capacity are NOT promoters of the company.

Formation of a Company

Section 3 of the Companies Act, 2013, details the basic

requirements of forming a company as follows:

 Formation of a public company involves 7 or more people

who subscribe their names to the memorandum and register
the company for any lawful purpose.
 Similarly, 2 or more people can form a private company.
 One person can form a One-person company.

Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for

incorporation of a company. Here is the procedure:

Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the
following company registration papers with the registrar within
whose jurisdiction the location of the registered office of the
proposed company falls.

1. The Memorandum and Articles of the company. All

subscribers have to sign on the memorandum.
2. The person who is engaged in the formation of the company
has to give a declaration regarding compliance of all the
requirements and rules of the Act. A person named in the
Articles also has to sign the declaration.
3. Each subscriber to the Memorandum and individuals named
as first directors in the Articles should submit an affidavit
with the following details:
i. Declaration regarding non-conviction of any offence with
respect to the formation, promotion, or management of
any company.
ii. He has not been found guilty of fraud or any breach of
duty to any company in the last five years.
iii. The documents filed with the registrar are complete and
true to the best of his knowledge.
4. Address for correspondence until the registered office is set-
up.
5. If the subscriber to the Memorandum is an individual, then
he needs to provide his full name, residential address, and
nationality along with a proof of identity. If the subscriber is
a body corporate, then prescribed documents need to be
provided.
6. Individuals mentioned as subscribers to the Memorandum in
the Articles need to provide the details specified in the point
above along with the Director Identification Number.
7. The individuals mentioned as first directors of the company
in the Articles must provide particulars of interests in other
firms or bodies corporate along with their consent to act as
directors of the company as per the prescribed form and
manner.
Issuing the Certificate of Incorporation
Once the Registrar receives the information and company
registration papers, he registers all information and documents
and issues a Certificate of Incorporation in the prescribed form.

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to
the company which is a distinct identity for the company. The
allotment of CIN is on and from the company’s incorporation
date. The certificate carries this date.

Maintaining copies of Company registration papers

The company must maintain copies of all information and
documents until dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

 Furnish incorrect or false information

 Suppress any material information in the documents
provided to the Registrar for the incorporation, on purpose
In such cases, the individual is liable for action for fraud under
section 447.

The company is already incorporated based on false

information
If a company is already incorporated but it is found at a later
date that the information or documents submitted were false or
incorrect, then the promoters, first directors, and persons
making a declaration is liable for action for fraud under section
447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect
information or representation or suppressing material facts or
information in the documents furnished, the Tribunal can pass
the following orders (if an application is made and the Tribunal is
satisfied with it):

 Pass an order to regulate the management of the company.

It can include changes in its Memorandum and Articles if
required. This order is either in public interest or in the
interest of the company and its members and creditors.
 Make the liability of its members unlimited
 Order removal of the name of the company from the
Registrar of Companies
 Order the company to wind-up
 Pass any other order as it deems fit
Before passing an order, the Tribunal has to give the company a
reasonable opportunity to state its case. Also, the Tribunal
should consider the transactions of the company including
obligations contracted or payment of any liability.