CS Executive · Company Law and Practice

Dormant Company under Section 455: CS Executive Guide

A dormant company is a company formed for a future project, or to hold an asset or intellectual property, with no significant accounting transaction, or an inactive company, that applies to the Registrar under Section 455 for dormant status. The Registrar issues a certificate and records the company in the register of dormant companies.

What this chapter covers

This chapter deals with one section of the Companies Act, 2013: Section 455. It explains which companies can be dormant, how they get that status, what they must do to keep it, and how they return to active status. The chapter is short, but the definitions are precise. Marks come from exact wording.

The chapter links to other parts of Paper 2. Section 248 allows the Registrar to strike off a company that carries on no business for two immediately preceding financial years and has not applied for dormant status. Dormant status is therefore a way to avoid strike-off. Section 8 companies are also relevant because they are a special kind of company, and you should not mix their rules with dormant company rules.

Think of the chapter in four steps: meaning, application, compliance, and exit. Questions are usually either definition-based (inactive company, significant accounting transaction) or procedural (who applies, what the Registrar does, what happens on default). Answer in ICSI style: state the provision, apply it to the facts, and conclude.

This chapter is compact and the content is definitional, so you can master it in a short time. Examiners can ask for the meaning of an inactive company, the list of transactions that are not significant, or the Registrar's duties. Each of these is a direct recall from Section 455, and a precise answer earns full marks. It also strengthens your answers on strike-off under Section 248, where dormant status is the alternative route. Careful study here gives you reliable marks for little effort, which suits you if you are studying alongside work.

Dormant Company: topics in the order to study them

1Meaning and Concept of Dormant CompanyStart here because every later rule depends on the two types of company that can seek dormant status and on the definitions of inactive company and significant accounting transaction.
2Application for Dormant Status and Registrar's RoleNext, learn how status is obtained: the company's application, the Registrar's certificate, the register, and the case where the Registrar acts on his own after two years of non-filing.
3Obligations and Compliance of a Dormant CompanyOnce you know how status is granted, study what the company must do to keep it, and what happens if it fails.
4Removal of Dormant Status and Inactive CompanyFinish with the exit routes, the return to active status and the strike-off link with Section 248, because they need the earlier concepts to make sense.

How to prepare Dormant Company

The chapter rests on a few definitions and a short sequence of steps. Learn them by structure, not by reading again and again.

Read Section 455 once in full from the bare Act, then close it. Write the six sub-sections as a one-line summary each from memory.
Learn the two definitions in the Explanation word for word in meaning: inactive company (three alternative tests) and significant accounting transaction (everything except four listed items).
Make a flow chart: company applies, Registrar allows status and issues certificate, Registrar records it in the register, company meets conditions, then it either stays dormant, becomes active, or is struck off the register of dormant companies.
Separate the two entry routes: the company's own application under sub-section (1), and the Registrar's action under sub-section (4) after two consecutive years of non-filing of financial statements or annual returns.
Compare with Section 248(1)(c) in a small table in your notes: strike-off of a company with no business for two preceding financial years and no dormant application. Note the 30 days for representations.
Practise two or three written answers: a definition question, a procedure question, and a short case on whether a company can claim dormant status. Use the format of provision, application, conclusion.
Revise the prescribed matters (form, minimum directors, documents, annual fee) as items left to the Rules. Do not quote figures unless your study material gives them.

Common mistakes in Dormant Company

Treating every company with no business as a dormant company.
Fix: Write that dormant status exists only after the Registrar's certificate or his entry in the register. A company can be inactive without being dormant.
Listing the wrong items as significant accounting transactions.
Fix: Remember it as everything except four items: Registrar fees, payments to meet legal requirements, allotment of shares to meet legal requirements, and payments for office and records maintenance.
Giving a single test for an inactive company.
Fix: State all three limbs, which are alternatives: no business or operation, or no significant accounting transaction, or no financial statements and annual returns filed, each over the last two financial years.
Quoting fee amounts, number of directors or form numbers as if they are in the Act.
Fix: Say that the Act leaves these to be prescribed. Give figures only if you are sure of them from your study material.
Confusing dormant company provisions with strike-off under Section 248.
Fix: Keep two lines in your notes: Section 455 is a status that keeps the company on the register, and Section 248 is removal of the name, after which the company stands dissolved on Gazette publication.
Missing the Registrar's own power to enter a company in the dormant register.
Fix: Mention sub-section (4) in every full answer on the procedure: after two consecutive years without filing, the Registrar issues a notice and enters the name.

Last-day revision: Dormant Company

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.

Dormant Company practice questions

Dormant Company: frequently asked questions

Which companies can apply for dormant status under Section 455?

A company formed and registered for a future project, or to hold an asset or intellectual property, with no significant accounting transaction, can apply. An inactive company can also apply. The application goes to the Registrar in the prescribed manner.

What is an inactive company?

It is a company that has not been carrying on any business or operation, or has made no significant accounting transaction, during the last two financial years. It is also a company that has not filed financial statements and annual returns in the last two financial years.

Can the Registrar make a company dormant without its application?

Yes, in one case. If a company has not filed financial statements or annual returns for two financial years consecutively, the Registrar issues it a notice and enters its name in the register of dormant companies under Section 455(4).

What happens if a dormant company does not meet the requirements?

The Registrar strikes off the name of such a company from the register of dormant companies. To retain status, the company must have the prescribed minimum number of directors, file the prescribed documents and pay the prescribed annual fee.

How does a dormant company become active again?

It makes an application to the Registrar, accompanied by the prescribed documents and fee. Section 455(5) provides for this.