Understanding India’s Dormant Company Law: A Guide
The Companies Act, 2013 introduced the concept of a Dormant Company to promote ease of doing business and reduce compliance burdens for inactive companies.
- A company can apply for dormant status if it is not carrying on any significant accounting transaction and wishes to retain its corporate existence for future use.
- Dormant status allows companies to remain legally registered while operating under a simplified compliance regime.
- Companies that are not eligible to apply for dormant status include those that have been struck off the register, or those that have been dissolved.
Readers should care about this topic because it affects businesses that temporarily do not intend to carry out business activities, allowing them to retain their corporate vehicles without incurring the full compliance burden of an active company.
Dormant Company in India – Legal framework, Procedure and Compliances
Dormant Company in India — Legal framework, Procedure and Compliances
(Section 455 of the Companies Act, 2013 read with the Companies (Miscellaneous) Rules, 2014 )
In business practice, it is common for promoters to incorporate companies for future projects, asset holding structures, or strategic purposes. However, such companies may not immediately commence business operations. Prior to the enactment of the Companies Act, 2013, the earlier Companies Act, 1956 did not provide any formal legal status for such inactive companies.
As a result, even companies that had not started operations were required to comply with the full set of corporate compliances applicable to active companies, including preparation of financial statements, statutory audits, and regular filings with the Ministry of Corporate Affairs (“MCA”). This created unnecessary compliance burdens and administrative costs for companies that were legitimately inactive.
To address this gap and to promote ease of doing business, the Companies Act, 2013 introduced the concept of a Dormant Company under Section 455, allowing companies that are temporarily inactive to obtain a special legal status with reduced compliance requirements while retaining their corporate identity.
Meaning of Dormant Company
Under Section 455, a company may apply to the Registrar of Companies to be classified as a Dormant Company if it is not carrying on any significant accounting transaction and wishes to retain its corporate existence for future use.
A company may seek dormant status if it is:
Dormant status allows such companies to remain legally registered while operating under a simplified compliance regime.
Meaning of “Inactive Company”
Section 455 also introduces the concept of an Inactive Company.
An inactive company means a company which:
Such companies may apply to obtain dormant status through the prescribed procedure.
Meaning of “Significant Accounting Transaction”
The term significant accounting transaction is defined under the Companies (Miscellaneous) Rules, 2014.
It refers to any transaction other than:
These transactions are considered routine administrative activities and do not affect the dormant nature of the company.
Situations Where Dormant Status is Commonly Used
In practical corporate structuring, dormant company status is frequently used in the following situations:
Dormant status allows promoters to retain these corporate vehicles without incurring the full compliance burden of an active company.
Who can not apply for the Dormant status
The following types of Companies are not eligible to apply for dormant status:
Key benefits of Dormant Company status
Obtaining dormant status offers certain operational and compliance benefits to companies that temporarily do not intend to carry out business activities.
Key advantages include:
Eligibility Conditions Before Applying for Dormant Status
Before applying for dormant status, the company must ensure the following conditions are satisfied:
Ensuring compliance with these conditions is essential for smooth approval of the application by the Registrar of Companies.
Procedure to Obtain Dormant Company Status
The process for obtaining dormant status involves the following steps:
Step 1: Board Meeting: The Board of Directors should convene a meeting to:
1. Approve the proposal to apply for Dormant Company status,
2. Approve the notice for shareholder approval,
3. Authorise a director or professional to file the application with ROC.
Step 2: Shareholders’ approval: The company must obtain approval of shareholders by:
1. Passing a Special Resolution and obtaining consent of shareholders,
2. Proper minutes, attendance and other supporting records must be maintained.
Step 3: Filing application with the ROC: The company must file e-Form MSC-1 with the Registrar of Companies. The application includes the following attachments:
Step 4: ROC verification and certificate
Post filing an application with the ROC, ROC reviews the application and reserved the right to seek any clarification. Post satisfaction of ROC, a certificate in Form MSC-2 will be issued by the ROC and the company is shown as Dormant in the register.
Post-approval: Ongoing compliances for a Dormant Company
Even though dormant companies enjoy reduced compliance requirements, certain obligations must still be fulfilled.
Reactivation of Dormant Company
A dormant company can become active again when it intends to commence business operations.
The process involves:
1. Hold a Board Meeting and pass a Board Resolution approving activation of Company,
2. Filing e-Form MSC-4 with the MCA,
3. MCA issuing confirmation and restoring the company’s active status.
Power of ROC to Classify a Company as Dormant
Under Section 455(4), the Registrar of Companies may Suo Motu classify a company as dormant if the company has not filed financial statements or annual returns for two consecutive financial years.
This provision enables regulators to monitor inactive companies and maintain transparency in corporate records.
If a company continues to remain dormant for five (5) consecutive years, the registrar may consider initiating action for removal of the company’s name from the register under Section 248 of the Companies Act, 2013.
Compliance checklist (quick view)
For ease of reference, companies may follow this practical checklist:
✓ Ensure ROC filings are up to date before applying,
✓ Obtain Board approval and shareholder special resolution,
✓ Prepare Statement of Affairs certified by a Chartered Accountant,
✓ File MSC-1 and obtain dormant certificate,
✓ Maintain minimum number of directors,
✓ Hold two board meetings per year (one in each half),
✓ File MSC-3 annually,
✓ Avoid significant accounting transactions,
Special Update: The CCFS-2026 Opportunity
The Ministry of Corporate Affairs (“MCA”) has introduced a time-bound scheme to help inactive or defunct companies regularize their status with significant financial relief.
Scheme Highlights for Inactive Companies
Disclaimer: This article is intended solely for general educational and informational purposes. It does not constitute or professional opinion. Readers are advised to consult a professional or refer to the latest applicable laws and regulations before acting on any information contained herein. The provisions and interpretations may vary with subsequent amendments or judicial pronouncements.
CS Deepak Sharma, (Company Secretary, LL.B) (M.) +91-9873 99 7776 Email: csdeepaksharma10@gmail.com
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Readers should treat this as a tax and compliance update, not as personal advice.
This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.