CS Executive · Company Law and Practice

Dormant Company: formula sheet

Full chapter guide

Key formulas

Dormant company (Section 455(1)): Company formed for a future project / to hold an asset or IP + no significant accounting transaction, OR an inactive company → may apply to the Registrar for dormant status; It is a right to apply. The status is granted by the Registrar, who issues a certificate under Section 455(2).
Inactive company (Explanation (i)): No business or operation, OR no significant accounting transaction in the last 2 financial years, OR no financial statements and annual returns filed in the last 2 financial years; Any one limb is enough. The test looks at the last two financial years.
Significant accounting transaction (Explanation (ii)): Any transaction other than: (a) fees to Registrar; (b) payments to meet requirements of the Act or other law; (c) allotment of shares to meet requirements of the Act; (d) payments for maintenance of office and records; The four exclusions are the only ones. Learn them as a list.
Register of dormant companies (Section 455(3) and (4)): Registrar maintains the register; for 2 consecutive years of non-filing of financial statements or annual returns, Registrar issues notice and enters the name in the register; This is a second route into dormant status, initiated by the Registrar.
Who may apply: Section 455(1): (future project / hold asset or IP, with no significant accounting transaction) OR inactive company; Application is made to the Registrar in the prescribed manner.
Inactive company (any one test): No business/operation OR no significant accounting transaction in last 2 financial years OR no financial statements and annual returns filed in last 2 financial years; Wording is from the Explanation to Section 455(1).
Significant accounting transaction: Any transaction other than: Registrar fees; payments to meet legal requirements; allotment of shares to meet Act requirements; office and records maintenance; Only these four are ignored when testing for dormancy.
Registrar's role: Section 455(2): allow status + issue certificate; 455(3): maintain register; 455(4): notice and entry where no filing for 2 consecutive years; Forms and fees are prescribed in the rules.
Retaining dormant status: Minimum directors + prescribed documents + annual fee = status retained (Section 455(5)); All three are 'as may be prescribed'. The section sets the duty; the rules give numbers.
Minimum directors (rules): Public company: 3; Private company: 2; One Person Company: 1; Same as the normal minimum for each company type.
Annual return of dormant company: Form MSC-3, with financial statements and fee, within 30 days of financial year end; Statements are to be audited as the rules require. Confirm details in the study material.
Board meetings (Section 173(5)): At least 1 meeting in each half of the calendar year; gap of at least 90 days; Relaxation under Section 173(5) and the rules for One Person Companies, small companies and dormant companies. It is not part of Section 455. A default is dealt with under Section 173.
Consequence of default: Registrar strikes off name from register of dormant companies (Section 455(6)); Applies where the company fails to comply with the requirements of Section 455. The company is not dissolved. Only the dormant-status entry is removed.
Annual return penalty (Section 92(5)): ₹10,000 + ₹100 per day after the first; maximum ₹2,00,000 (company) and ₹50,000 (officer in default); Applies if the Section 92 annual return is not filed within 60 days of the AGM date.
Inactive company (Explanation to Section 455(1)): No business or operation, OR no significant accounting transaction, OR no financial statements and annual returns filed - during the last two financial years; Any one limb is enough. The test is the last two financial years.
Who may apply for dormant status (Section 455(1)): Future-project / asset / IP holding company with no significant accounting transaction, OR an inactive company; Application is made to the Registrar in the prescribed manner.
Significant accounting transaction (exclusions): Any transaction other than: Registrar fees; payments to meet legal requirements; allotment of shares to meet Act requirements; office and records maintenance; These four excluded items do not count as significant.
Registrar's suo motu entry (Section 455(4)): No financial statements or annual returns for two financial years consecutively → notice → name entered in register of dormant companies; Notice is mandatory before entry.
Retaining and ending dormant status (Section 455(5) and (6)): Retain: minimum directors + prescribed documents + annual fee. Revert to active: application + documents + fee. Default: Registrar strikes name off the register of dormant companies; Section 455(6) strike off concerns the register of dormant companies only.
Strike off from register of companies (Section 248): Notice to company and all directors → 30 days for representations → Registrar may strike off → Gazette notice → company stands dissolved; Section 248(1)(c): no business for two immediately preceding financial years and no application for dormant status.
Restoration after strike off (Section 252): Appeal to Tribunal within 3 years of Registrar's order; aggrieved company, member, creditor or workman within 20 years of Gazette notice under Section 248(5); Tribunal order to be filed with Registrar within 30 days; fresh certificate of incorporation issued.

Quick revision

Section 455 deals with dormant companies. Application is made to the Registrar in the prescribed manner.
A company formed for a future project, or to hold an asset or intellectual property, and with no significant accounting transaction, may apply. An inactive company may also apply.
Inactive company: no business or operation, or no significant accounting transaction, during the last two financial years; or no financial statements and annual returns filed during the last two financial years.
Significant accounting transaction means any transaction other than four items: fees to the Registrar, payments to meet legal requirements, allotment of shares to meet legal requirements, and payments for maintaining office and records.
The Registrar allows dormant status and issues a certificate in the prescribed form.
The Registrar maintains a register of dormant companies in the prescribed form.
If a company has not filed financial statements or annual returns for two financial years consecutively, the Registrar issues a notice and enters its name in the register of dormant companies.
To retain status, a dormant company must keep the prescribed minimum number of directors, file the prescribed documents and pay the prescribed annual fee.
A dormant company may become active by applying with the prescribed documents and fee.
The Registrar strikes off the name of a dormant company from the register of dormant companies if it fails to comply with Section 455.
Under Section 248(1)(c), a company doing no business for two immediately preceding financial years, with no dormant application in that period, risks strike-off after a 30-day notice.
Section 8 companies are separate. Section 248(3) says the company-initiated removal route in Section 248(2) does not apply to them.

Common mistakes

Saying a company becomes dormant automatically once it stops trading. Fix: State that the company must apply and the Registrar allows the status and issues a certificate under Section 455(2). The only exception is the Registrar-initiated entry under Section 455(4).
Treating every payment as a significant accounting transaction. Fix: Learn the list: Registrar fees, payments to meet legal requirements, allotment of shares to meet the Act, and office and records maintenance. These are not significant.
Saying the company applies to the Tribunal or the Central Government. Fix: The application goes to the Registrar, who issues the certificate under Section 455(2).
Treating all three inactive tests as cumulative. Fix: The tests are joined by "or". Meeting any one makes the company inactive.
Saying a dormant company has no compliance at all. Fix: Remember the status must be retained. Directors, documents and the annual fee are required under Section 455(5).
Saying non-compliance dissolves the company. Fix: Section 455(6) only strikes the name off the register of dormant companies. The company remains registered.
Treating inactive and dormant as the same thing. Fix: Say that inactive is a factual state and dormant is a status granted by the Registrar on application or under Section 455(4).
Saying that striking off under Section 455(6) dissolves the company. Fix: Section 455(6) removes the name from the register of dormant companies only. Dissolution happens under Section 248(5) on Gazette publication.

Exam tips

Write the definition in two parts: the future project or asset or IP route, and the inactive company route. Examiners look for both.
Reproduce the four exclusions from significant accounting transaction in a short list. This often earns marks on its own.
In case questions, test each transaction one by one and then conclude. Do not just state the result.
Cite Section 455(1) for meaning, 455(2) for the Registrar's certificate, and Section 455(4) for notice after two years of non-filing.
Keep procedure and compliance for their own answers. Do not overload a definition question.
Write the section number first, then the category of applicant, then apply facts.
Always list the four excluded payments when a question asks about significant accounting transactions.
Say who does what: the company applies, the Registrar allows status, issues the certificate and keeps the register.