Companies Act Section 455

Companies Act, Section 455: Dormant Company 

Section 455 introduces the concept of a Dormant Company. It is designed to support companies that are created for future business plans, long-term projects, or to hold assets such as property or intellectual property, but are not currently active in business operations. 

This provision allows such companies to maintain their legal status without the burden of full compliance requirements meant for active companies.

Purpose and Applicability of Dormant Company Status

A company may apply for dormant status when:

It is incorporated for a future project. It is established to hold an asset or intellectual property. It has no significant accounting transactions.

This helps keep the company legally valid while reducing unnecessary compliance costs during periods of inactivity.

Inactive Company

A company is considered inactive if:

It has not carried on any business or operations in the last two financial years.

It has not made any significant accounting transactions in the last two financial years.

It has not filed financial statements and annual returns during the same period.

Significant Accounting Transaction

Any important business transaction excluding:

(a) Payment of fees to the Registrar.

(b) Payments necessary to comply with laws (such as statutory fees or fines).

(c) Allotment of shares as required under the Act.

(d) Payments necessary for maintaining the company’s office and records.

These exclusions ensure that routine legal and administrative payments do not disqualify a company from becoming dormant.

Procedure for Obtaining Dormant Status

a) Application to Registrar

An eligible company may apply to the Registrar in the prescribed manner. The application must show that the company meets the inactivity criteria

b) Approval and Certificate

Upon reviewing the application, the Registrar may grant the status of a dormant company. A formal certificate is issued as proof of dormant status

Registrar’s Responsibilities

a) Maintenance of Register of Dormant Companies

The Registrar must maintain a register listing all companies declared dormant.

This register is kept in a prescribed format for public record and regulatory tracking.

b) Suo Motu Action by Registrar

If a company has not filed financial statements or annual returns for two consecutive financial years.

The Registrar may issue a notice and directly categorize the company as dormant.

The company’s name will be recorded in the dormant register without application from the company.

Compliance Requirements During Dormant Status

Dormant companies must follow certain basic requirements to retain their status, including:

Maintaining a minimum number of directors, Filing required documents annually as prescribed, paying annual fees to the Registrar.

These limited obligations ensure the company continues to exist legally.

Reactivating Dormant Companies

A dormant company may resume business by:

Filing an application to become active, submitting required documents and fees, registrar updates status from dormant to active after due verification.

This allows business operations to restart smoothly when the company becomes commercially viable.

Consequences for Non-Compliance

If a dormant company fails to comply with conditions for retaining the status:

The Registrar may strike off its name from the dormant companies register.

The company may lose its dormant status and face further legal consequences under the Act.