Company Law and Practice · Dormant Company

Inactive Company and Removal of Dormant Status

Updated 11 October 2026 · Fact-checked

An inactive company is one that has done no business or significant accounting transaction, or filed no financial statements and annual returns, for two financial years. A dormant company is an inactive or future-project company that has obtained dormant status under Section 455. Dormant status ends on application to become active, or by Registrar striking off for non-compliance.

Understand Removal of Dormant Status and Inactive Company

Start with the two labels. Inactive company is a description of facts. Dormant company is a legal status that the Registrar grants. A company can be inactive without being dormant. It becomes dormant only when it has that status recorded in the register of dormant companies.

Section 455(1) lets two kinds of company apply for dormant status. The first is a company formed for a future project, or to hold an asset or intellectual property, which has no significant accounting transaction. The second is an inactive company. The Explanation says a company is inactive if, during the last two financial years, it has not carried on any business or operation, or has not made any significant accounting transaction, or has not filed financial statements and annual returns. Note that the three limbs are joined by 'or'. Any one is enough.

A significant accounting transaction is any transaction other than four things: fees paid to the Registrar, payments made to meet the requirements of the Act or any other law, allotment of shares to meet the requirements of the Act, and payments for maintaining the office and records. So these routine items do not stop a company from being inactive.

The Registrar can also act without an application. Under Section 455(4), if a company has not filed financial statements or annual returns for two financial years consecutively, the Registrar issues a notice to it and enters its name in the register of dormant companies. Separately, under Section 248(1)(c), the Registrar may begin strike off if a company has not carried on business for two immediately preceding financial years and has not applied for dormant status. This is why dormant status is a safe harbour from strike off for a company that is genuinely idle.

To keep the status, the company must keep the prescribed minimum number of directors, file the prescribed documents and pay the prescribed annual fee. It can become active again by applying with the prescribed documents and fee (Section 455(5)). If it fails the requirements, the Registrar strikes its name off the register of dormant companies (Section 455(6)). That removes the dormant status. It does not by itself dissolve the company.

Key rules to remember

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.

How to solve Removal of Dormant Status and Inactive Company questions

Use this method for any question on inactive companies, dormant status, its removal, or strike off. Write the provision first, then apply the facts, then conclude.

1Identify what the question asks: the meaning of inactive or dormant, who can apply, how status ends, or what the Registrar can do.
2Test the facts against the Explanation to Section 455(1): look at the last two financial years and check each of the three limbs for inactivity.
3Strip out the four excluded items before deciding whether a transaction was significant. Fees to the Registrar, legal compliance payments, required share allotments and office upkeep do not count.
4Decide the route: voluntary application under Section 455(1), or the Registrar's own action under Section 455(4) after two consecutive years of non-filing.
5If the question is about ending dormant status, split it. Conversion to active is by company's application with documents and fee (Section 455(5)). Removal from the dormant register is by Registrar for default (Section 455(6)).
6If the company never applied for dormant status and was idle for two years, bring in Section 248(1)(c) and the notice, 30-day representation, Gazette and dissolution steps.
7Mention remedies where relevant: Section 252 restoration, and the continuing liability of directors and members under Section 248(7).
8End with a clear conclusion that answers the exact question asked.

Quickest way: Three-question check for dormant and inactive problems

When to use it: Use when you have limited time and a short fact-based question about status, strike off or reverting to active.

Question 1: Has the company applied and been granted a certificate? If yes, it is dormant. If no, it is at most inactive.
Question 2: Is the issue about leaving dormant status? Active again means application under Section 455(5). Struck off the dormant register means default under Section 455(6).
Question 3: Did the company stay idle two years with no dormant application? Then Section 248(1)(c) strike off is the risk. Write the notice, 30 days and Gazette sequence in one line each.

Common mistakes in Removal of Dormant Status and Inactive Company

Treating inactive and dormant as the same thing.
Both describe an idle company, and the words sound alike.
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.
Students link the words 'strike off' with Section 248, where dissolution follows.
Fix: Section 455(6) removes the name from the register of dormant companies only. Dissolution happens under Section 248(5) on Gazette publication.
Counting Registrar fees or office upkeep as significant accounting transactions.
Students read 'any transaction' and forget the four exclusions.
Fix: Learn the four exclusions as a list: Registrar fees, legal requirement payments, required share allotments, office and records upkeep.
Reading the inactive test as requiring all three conditions together.
Students assume more conditions mean a stricter test.
Fix: The limbs are joined by 'or'. Failing any one of them for the last two financial years makes the company inactive.
Quoting the wrong time limits for restoration under Section 252.
There are two different periods, and students merge them.
Fix: Appeal against the Registrar's order: three years from the order. Application by company, member, creditor or workman: twenty years from the Gazette notice under Section 248(5).
Saying a dormant company can never be struck off.
Students remember dormant status as protection from Section 248.
Fix: Dormant status protects only while the requirements are met. On default the Registrar can remove the company from the dormant register under Section 455(6).

Worked examples

Example 1

Sundaram Projects Private Limited was incorporated to hold a patent. For the last two financial years its only payments were fees to the Registrar and office rent. It has not allotted any shares. The directors ask whether it can obtain dormant status and what they must do later to keep it.

Show the solution

Provision: Section 455(1) allows a company formed to hold an asset or intellectual property, with no significant accounting transaction, to apply to the Registrar for dormant status.
Facts: The company holds a patent, which is intellectual property. Its only payments are Registrar fees and office maintenance.
Analysis: Both payments are excluded from significant accounting transactions, since Registrar fees and payments for maintaining the office and records are expressly excluded. So the company has no significant accounting transaction.
Process: It applies to the Registrar in the prescribed manner. On consideration, the Registrar allows the status and issues a certificate under Section 455(2) and records the company in the register of dormant companies.
Retention: Under Section 455(5) it must keep the prescribed minimum number of directors, file the prescribed documents and pay the prescribed annual fee.

Answer: Yes. Sundaram Projects qualifies under Section 455(1) as an asset or IP holding company with no significant accounting transaction. To keep the status it must maintain the prescribed minimum directors, file prescribed documents and pay the annual fee.

Example 2

Kaveri Traders Limited is a dormant company. It now wants to restart business. Separately, Anand Exports Limited has filed no financial statements or annual returns for two consecutive financial years and has never applied for dormant status. Explain the position of each.

Show the solution

Kaveri Traders: Under Section 455(5), a dormant company may become an active company on an application made to the Registrar, accompanied by the prescribed documents and fee.
Kaveri's conclusion: It should file that application. Once accepted, it is active again and leaves dormant status.
Anand Exports, first route: Under Section 455(4), where a company has not filed financial statements or annual returns for two financial years consecutively, the Registrar issues a notice to it and enters its name in the register of dormant companies.
Anand Exports, second consideration: Where the company is not carrying on any business or operation for two immediately preceding financial years and has made no application for dormant status, Section 248(1)(c) lets the Registrar begin strike off. He sends a notice to the company and all directors and allows thirty days for representations.
Consequence of strike off: After the notice period, unless cause is shown, the Registrar may strike off the name and publish it in the Official Gazette. The company then stands dissolved. Section 248(7) keeps the liability of directors, managers, other officers and members enforceable. Restoration is possible under Section 252.

Answer: Kaveri Traders reverts to active status by applying with documents and fee under Section 455(5). Anand Exports faces a Registrar's notice and entry in the dormant register under Section 455(4), and, if it was also not carrying on business for two years with no application, possible strike off under Section 248(1)(c), with Section 252 remedies available.

Exam tips

Write the section number with each limb: 455(1) for application and definitions, 455(4) for Registrar's entry, 455(5) for retention and reverting to active, 455(6) for removal from the dormant register.
When asked to distinguish inactive and dormant, give points: nature (fact versus status), how acquired, who grants, register and consequence.
Always state the two-financial-year test in the exact words. Examiners look for 'last two financial years' and the three 'or' limbs.
If strike off appears, give the Section 248 steps in order: notice, 30 days, Gazette, dissolution, then Section 252 restoration.
Close the answer with a one-line conclusion tied to the facts, not a restatement of the law.

Practice questions from Dormant Company

Removal of Dormant Status and Inactive Company: frequently asked questions

What is the difference between an inactive company and a dormant company?

An inactive company is one that, in the last two financial years, has not carried on business or operation, or made a significant accounting transaction, or filed financial statements and annual returns. A dormant company is one that has been granted dormant status under Section 455. Inactivity is a fact. Dormant status is a legal status given by the Registrar.

How does a dormant company become active again?

Under Section 455(5), it makes an application to the Registrar accompanied by the prescribed documents and fee. The exact form and fee are as prescribed in the rules. Once the Registrar accepts it, the company is active.

What happens under Section 455(4) when a company does not file for two years?

If a company has not filed financial statements or annual returns for two financial years consecutively, the Registrar issues a notice to it. He then enters its name in the register maintained for dormant companies. No application from the company is needed.

Can a dormant company be removed from the dormant register?

Yes. Under Section 455(6), the Registrar strikes off the name of a dormant company from the register of dormant companies if it fails to comply with the section's requirements. This removes the status. It does not dissolve the company.